News and Business Cycles in Open Economies

Nir Jaimovich and Sergio Rebelo ()

Journal of Money, Credit and Banking, 2008, vol. 40, issue 8, 1699-1711

Abstract: We study the effects of news about future total factor productivity (TFP) in a small open economy. We show that an open-economy version of the neoclassical model produces a recession in response to good news about future TFP. We propose an open-economy model that generates comovement in response to TFP news. The key elements of our model are a weak short-run wealth effect on the labor supply and adjustment costs to labor and investment. We show that our model also generates comovement in response to news about future investment-specific technical change and to "sudden stops." Copyright (c) 2008 The Ohio State University.

Date: 2008
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Related works:
Working Paper: News and Business Cycles in Open Economies (2007)
Working Paper: News and Business Cycles in Open Economies (2007)
Working Paper: News and Business Cycles in Open Economies (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:40:y:2008:i:8:p:1699-1711

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