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Transmission mechanisms of real stochastic shocks in a small open economy

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  • Eduardo Giménez
  • José Martín-Moreno

Abstract

We offer a qualitative evaluation of the transmission mechanisms of two real shocks, a productivity shock and a government expenditure shock in Walrasian business cycle models. The analysis is developed in a monetary small open economy business cycle model, a set-up general enough to study the effects of the two shocks on both real and nominal variables. Qualitative and graphical displays indicate properties of Real Business Cycles that are able to reproduce observed cyclical patterns, independently of the calibration used for different economies. These qualitative findings match the quantitative results found in the literature, and rationalize some disparity findings (such as the cyclicity pattern of prices) and failures (such as the Dunlop–Tarshis observation). We suggest that understanding the underlying qualitative intuitions of these models may be of great help in tackling new puzzles in this area. Copyright Springer-Verlag 2013

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  • Eduardo Giménez & José Martín-Moreno, 2013. "Transmission mechanisms of real stochastic shocks in a small open economy," International Economics and Economic Policy, Springer, vol. 10(2), pages 217-245, June.
    • Handle: RePEc:kap:iecepo:v:10:y:2013:i:2:p:217-245
    DOI: 10.1007/s10368-012-0206-7
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    More about this item

    Keywords

    Small open economy; Real business cycle theory; Cash-in-advance constraint; Productivity shock; Government expenditure shock; E32; E37; E47; E52; F41;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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