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Vertical international trade as a monetary transmission mechanism in an open economy

Author

Listed:
  • Kevin Huang
  • Z. Liu

Abstract

This paper analyzes a two-country general equilibrium model with multiple stages of production and sticky prices. Working through the cross-country input-output relations and endogenous price stickiness, the model generates the observed patterns in international aggregate comovements following monetary shocks. In particular, both output and consumption comove across countries, and output correlation is larger than consumption correlation, as in the data. The model also generates persistent fluctuations of real exchange rates. Thus, vertical international trade plays an important role in propagating monetary shocks in an open economy.

Suggested Citation

  • Kevin Huang & Z. Liu, "undated". "Vertical international trade as a monetary transmission mechanism in an open economy," Working Papers 2000-07, Utah State University, Department of Economics.
    • Handle: RePEc:usu:wpaper:2000-07
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    File URL: https://repec.bus.usu.edu/RePEc/usu/pdf/ERI2000-07.pdf
    File Function: First version, 2000
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    Cited by:

    1. Huang, Kevin X.D. & Liu, Zheng, 2006. "Sellers' local currency pricing or buyers' local currency pricing: does it matter for international welfare analysis?," Journal of Economic Dynamics and Control, Elsevier, vol. 30(7), pages 1183-1213, July.
    2. K. Huang & Z. Liu & L. Phaneuf, "undated". "Staggered contracts, intermediate goods and the dynamic effects of monetary shocks on output, inflation and real wages," Working Papers 2000-20, Utah State University, Department of Economics.
    3. Kevin X. D. Huang & Zheng Liu, 2004. "Multiple stages of processing and the quantity anomaly in international business cycle models," Research Working Paper RWP 04-05, Federal Reserve Bank of Kansas City.
    4. Kevin X. D. Huang & Zheng Liu, 2005. "Vertical production and trade interdependence and welfare," Working Papers 05-15, Federal Reserve Bank of Philadelphia.

    More about this item

    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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