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Institutional Affiliation: Federal Reserve Board
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NBER Working Papers and Publications
|November 2007||The Transmission of Domestic Shocks in the Open Economy|
with Christopher J. Erceg, David López-Salido: w13613
This paper uses an open economy DSGE model to explore how trade openness affects the transmission of domestic shocks. For some calibrations, closed and open economies appear dramatically different, reminiscent of the implications of Mundell-Fleming style models. However, we argue such stark differences hinge on calibrations that impose an implausibly high trade price elasticity and Frisch elasticity of labor supply. Overall, our results suggest that the main effects of openness are on the composition of expenditure, and on the wedge between consumer and domestic prices, rather than on the response of aggregate output and domestic prices.
Published: Christopher Erceg & Christopher Gust & David López-Salido, 2007. "The Transmission of Domestic Shocks in Open Economies," NBER Chapters, in: International Dimensions of Monetary Policy, pages 89-148 National Bureau of Economic Research, Inc.
|June 2007||The Transmission of Domestic Shocks in Open Economies|
with Christopher Erceg, David López-Salido
in International Dimensions of Monetary Policy , Jordi Galí and Mark J. Gertler, editors
|June 2002||Monetary Policy in a Financial Crisis|
with Lawrence J. Christiano, Jorge Roldos: w9005
What are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis? Under what conditions will a cut stimulate output and employment, and raise welfare? Under what conditions will a cut have the opposite e ffects? We answer these questions in a general class of open economy models, where a financial crisis is modeled as a time when collateral constraints are suddenly binding. We find that when there are frictions in adjusting the level of output in the traded good sector and in adjusting the rate at which that output can be used in other parts of the economy, then a cut in the interest rate is most likely to result in a welfare-reducing fall in output and employment. When these frictions are absent, a cut in the interest rate improves asset position...
Published: Christiano, Lawrence J., Christopher Gust and Jorge Roldos. "Monetary Policy In A Financial Crisis," Journal of Economic Theory, 2004, v119(1,Nov), 64-103. citation courtesy of