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News and Business Cycles in Open Economies

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  • NIR JAIMOVICH
  • SERGIO REBELO

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.”

Suggested Citation

  • Nir Jaimovich & Sergio Rebelo, 2008. "News and Business Cycles in Open Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1699-1711, December.
    • Handle: RePEc:wly:jmoncb:v:40:y:2008:i:8:p:1699-1711
    DOI: 10.1111/j.1538-4616.2008.00179.x
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    5. Matsue Toyoki, 2019. "Labour Market Institutions and Amplification of Employment Fluctuations," Central European Economic Journal, Sciendo, vol. 6(53), pages 164-173, January.
    6. Yazdani , Mahdi & Daryani , Elmira, 2021. "Output Loss from Sudden Stop of FDI and the Role of Macroeconomic Policies," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 16(2), pages 213-236, June.
    7. Dvorkin, Maximiliano & Sánchez, Juan M. & Sapriza, Horacio & Yurdagul, Emircan, 2020. "News, sovereign debt maturity, and default risk," Journal of International Economics, Elsevier, vol. 126(C).
    8. Daragh Clancy & Lorenzo Ricci, 2022. "Economic sentiments and international risk sharing," International Economics, CEPII research center, issue 169, pages 208-229.
    9. Daragh Clancy & Lorenzo Ricci, 2019. "Loss aversion, economic sentiments and international consumption smoothing," Working Papers 35, European Stability Mechanism.

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