Vertical International Trade as a Monetary Transmission Mechanism in an Open Economy

Kevin X.D. Huang () and Zheng Liu ()

No 107, Cahiers de recherche CREFE / CREFE Working Papers from CREFE, Université du Québec à Montréal

Abstract: This paper analyzes a two-country general equilibrium model with multiple stages of production and sticky prices. Working through the cross-country input-output relations and endogenous price stickiness, the model generates the observed patterns in international aggregate comovements following monetary shocks. In particular, both output and consumption comove across countries, and output correlation is larger than consumption correlation, as in the data. The model also generates persistent fluctuations of real exchange rates. Thus, vertical international trade plays an important role in propagating monetary shocks in an open economy.

Keywords: Vertical International Trade; Monetary Policy; International Comovements; Real Exchange Rate Persistence (search for similar items in EconPapers)
JEL-codes: E32 F31 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ifn and nep-mon
Date: 2000-02
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Related works:
Working Paper: Vertical International Trade as a Monetary Transmission Mechanism in an Open Economy (2000)
Working Paper: Vertical international trade as a monetary transmission mechanism in an open economy
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