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International Transmission through Relative Prices

Author

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  • Nan Li

    (Ohio State University)

  • Keyu Jin

    (London School of Economics)

Abstract

We examine how U.S. monetary and fiscal policy shocks affect emerging markets’ aggregate economy. We find that emerging markets’ reaction to U.S. policy shocks differ widely from those of industrialized countries. Expansionary policies tend to depreciate the currencies of emerging markets, while appreciating the currencies of European economies. Moreover, net exports rise significantly in emerging markets, suggesting strong spillovers from the demand channel. All of these results are opposite of the predictions of a standard model. We examine whether incorporating a more realistic structure of trade can help understand the differential impact of policy spillovers to industrialized and emerging economies alike.

Suggested Citation

  • Nan Li & Keyu Jin, 2012. "International Transmission through Relative Prices," 2012 Meeting Papers 1185, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:1185
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    File URL: https://economicdynamics.org/meetpapers/2012/paper_1185.pdf
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    References listed on IDEAS

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    1. Ambler, Steve & Cardia, Emanuela & Zimmermann, Christian, 2002. "International transmission of the business cycle in a multi-sector model," European Economic Review, Elsevier, vol. 46(2), pages 273-300, February.
    2. Kollmann, Robert, 1996. "Incomplete asset markets and the cross-country consumption correlation puzzle," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 945-961, May.
    3. Luigi Pistaferri, 2003. "Anticipated and Unanticipated Wage Changes, Wage Risk, and Intertemporal Labor Supply," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 729-754, July.
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    Cited by:

    1. Shang-Jin Wei & Yinxi Xie, 2018. "On the Divergence between CPI and PPI as Inflation Gauges: The Role of Supply Chains," NBER Working Papers 24319, National Bureau of Economic Research, Inc.
    2. Ju, Jiangdong & Shi, Kang & Wei, Shang-Jin, 2013. "Trade reforms and current account imbalances," BOFIT Discussion Papers 25/2013, Bank of Finland, Institute for Economies in Transition.
    3. David Pothier & Damien Puy, 2014. "Demand Composition and Income Distribution," IMF Working Papers 14/224, International Monetary Fund.

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