News and Business Cycles in Open Economies

Nir Jaimovich*, Sergio Rebelo

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

31 Scopus citations

Abstract

We study the effects of news about future total factor productivity (TFP) in a small open economy. We show that an open-economy version of the neoclassical model produces a recession in response to good news about future TFP. We propose an open-economy model that generates comovement in response to TFP news. The key elements of our model are a weak short-run wealth effect on the labor supply and adjustment costs to labor and investment. We show that our model also generates comovement in response to news about future investment-specific technical change and to "sudden stops."

Original languageEnglish (US)
Pages (from-to)1699-1711
Number of pages13
JournalJournal of Money, Credit and Banking
Volume40
Issue number8
DOIs
StatePublished - Dec 2008

Keywords

  • News
  • Open economy
  • Sudden stops

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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