Discussion Paper Details

Please find the details for DP6574 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: The Transmission of Domestic Shocks in Open Economies

Author(s): Christopher Erceg, Christopher Gust and J David López-Salido

Publication Date: November 2007

Keyword(s): imported intermediate inputs, open economy Phillips Curve and variable markups

Programme Area(s): International Macroeconomics

Abstract: 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 labour 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.

For full details and related downloads, please visit:

Bibliographic Reference

Erceg, C, Gust, C and López-Salido, J. 2007. 'The Transmission of Domestic Shocks in Open Economies'. London, Centre for Economic Policy Research.