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Transmission mechanisms of real stochastic shocks in a small open economy

  • Eduardo Giménez

    ()

  • José Martín-Moreno

    ()

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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File URL: http://hdl.handle.net/10.1007/s10368-012-0206-7
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Article provided by Springer in its journal International Economics and Economic Policy.

Volume (Year): 10 (2013)
Issue (Month): 2 (June)
Pages: 217-245

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Handle: RePEc:kap:iecepo:v:10:y:2013:i:2:p:217-245
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  1. Bencivenga, Valerie R, 1992. "An Econometric Study of Hours and Output Variation with Preference Shocks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 449-71, May.
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  5. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
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  7. David K. Backus & Patrick J. Kehoe, 1992. "International Evidence on the Historical Properties of Business Cycles," Working Papers 92-5, New York University, Leonard N. Stern School of Business, Department of Economics.
  8. Pedro Duarte Neves & Diana Bonfim, 2002. "Cyclical Behaviour of the Portuguese Economy: 1953-1995," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  9. Jordi Galí & Pau Rabanal, 2005. "Technology Shocks and Aggregate Fluctuations: How Well Does the Real Business Cycle Model Fit Postwar U.S. Data?," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 225-318 National Bureau of Economic Research, Inc.
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  11. Cooley, T.F. & Cho, J.O., 1991. "The Business Cycle with Nominal Contracts," Papers 90-07, Rochester, Business - General.
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