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Understanding the Effect of Productivity Changes on International Relative Prices: The Role of News Shocks

Title
Understanding the Effect of Productivity Changes on International Relative Prices: The Role of News Shocks
Author
남덕우
Keywords
BUSINESS CYCLES; MONETARY-POLICY; AGGREGATE FLUCTUATIONS; INTEREST-RATES; TRADE; RULES; FRAMEWORK; RETURNS; ECONOMY; MODELS
Issue Date
2018-08
Publisher
WILEY
Citation
PACIFIC ECONOMIC REVIEW, v. 23, no. 3, page. 490-516
Abstract
The US real exchange rate and terms of trade have been found to appreciate when US labour productivity increases relative to the rest of the world. This finding is at odds with predictions from standard international macroeconomic models. In this paper, we find that incorporating news shocks to total factor productivity (TFP) in an otherwise standard open-economy sticky-price dynamic stochastic general equilibrium (DSGE) model with variable capital utilization can help the model replicate the above empirical finding. Labour productivity increases in our model after a positive news shock to TFP because of an increase in capital utilization. Under some plausible calibrations, the wealth effect of good news about future productivity can increase domestic demand strongly and induce an increase in home goods prices relative to foreign goods prices.
URI
https://onlinelibrary.wiley.com/doi/abs/10.1111/1468-0106.12200http://repository.hanyang.ac.kr/handle/20.500.11754/119823
ISSN
1361-374X; 1468-0106
DOI
10.1111/1468-0106.12200
Appears in Collections:
COLLEGE OF ECONOMICS AND FINANCE[S](경제금융대학) > ECONOMICS & FINANCE(경제금융학부) > Articles
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