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Technology shocks under varying degrees of financial openness

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  • Cakici, S. Meral

Abstract

The objective of this paper is to analyze the implications of varying degrees of financial openness for the impact of technology shocks on a real, small open economy with financial and informational frictions. Aggregate fluctuations and propagation mechanisms under increasing financial openness are investigated in a dynamic, stochastic, general equilibrium framework in the case of positive technology shocks. The imperfections in the economy in the form of informational asymmetries among the agents and uncertainty in the production process necessitate financial intermediation and collateralized borrowing in the economy. The reason to abstract from money in the setup of the framework is to be able to concentrate on the real implications of increasing financial openness for the effect of technology shocks, business cycle implications of which have long been discussed in the literature. It is shown that increasing financial openness amplifies the impact of positive, temporary technology shocks on output, investment, consumption, labor supply and net exports.

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  • Cakici, S. Meral, 2012. "Technology shocks under varying degrees of financial openness," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 232-245.
    • Handle: RePEc:eee:reveco:v:21:y:2012:i:1:p:232-245
    DOI: 10.1016/j.iref.2011.06.005
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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