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News and Business Cycles in Open Economies

Author

Listed:
  • Nir Jaimovich

    (Economics Department, Stanford Univerity)

  • Sergio Rebelo

    (Northwestern University)

Abstract

It is well known that the neoclassical model does not generate comovement among macroeconomic aggregates in response to news about future total factor productivity. We show that this problem is generally more severe in open economy versions of the neoclassical model. We present an open economy model that generates comovement both in response to sudden stops and to news about future productivity and investment-specific technical change. We find that comovement is easier to generate in the presence of weak short-run wealth effects on the labor supply, adjustment costs to labor, and/or investment, and whenever the real interest rate faced by the economy rises with the level of net foreign debt.

Suggested Citation

  • Nir Jaimovich & Sergio Rebelo, 2007. "News and Business Cycles in Open Economies," Discussion Papers 07-016, Stanford Institute for Economic Policy Research.
    • Handle: RePEc:sip:dpaper:07-016
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    References listed on IDEAS

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    More about this item

    Keywords

    business cycles; neoclassical model; future total factor productivity; open economy;
    All these keywords.

    JEL classification:

    • B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Wicksellian)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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