News and Business Cycles in Open Economies

Nir Jaimovich and Sergio Rebelo ()

No 07-016, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: It is well known that the neoclassical model does not generate comovement among macroeconomic aggregates in response to news about future total factor productivity. We show that this problem is generally more severe in open economy versions of the neoclassical model. We present an open economy model that generates comovement both in response to sudden stops and to news about future productivity and investment-specific technical change. We find that comovement is easier to generate in the presence of weak short-run wealth effects on the labor supply, adjustment costs to labor, and/or investment, and whenever the real interest rate faced by the economy rises with the level of net foreign debt.

Keywords: business cycles; neoclassical model; future total factor productivity; open economy (search for similar items in EconPapers)
JEL-codes: B13 E32 (search for similar items in EconPapers)
Date: 2007-09
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Citations: View citations in EconPapers (11)

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Related works:
Journal Article: News and Business Cycles in Open Economies (2008)
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:sip:dpaper:07-016

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