Open-Economy Implications of Two Models of Business Fluctuations

21 Pages Posted: 6 Mar 2007 Last revised: 8 Aug 2022

See all articles by Alan C. Stockman

Alan C. Stockman

University of Rochester - Department of Economics; National Bureau of Economic Research (NBER)

Ai Tee Koh

affiliation not provided to SSRN

Date Written: March 1984

Abstract

This paper shows how open-economy implications of alternative business-cycle models can be used to discriminate between those models. Open-economy versions of two well-known models are presented: a model with predetermined nominal wages and a model in which nominal disturbances are misperceived as real disturbances. In the former model applied to a small economy with flexible exchange rates, an unanticipated increase in the money supply increases output of both traded and nontraded goods, lowers the relative price of nontraded goods, and inducesa current-account surplus. In the latter model, an unperceived increase in the money supply increases output of nontraded goods but reduces output of traded goods, raises the relative price of nontraded goods, and induces a current-account deficit.

Suggested Citation

Stockman, Alan C. and Koh, Ai Tee, Open-Economy Implications of Two Models of Business Fluctuations (March 1984). NBER Working Paper No. w1317, Available at SSRN: https://ssrn.com/abstract=968629

Alan C. Stockman (Contact Author)

University of Rochester - Department of Economics ( email )

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Rochester, NY 14627
United States
585-275-7214 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ai Tee Koh

affiliation not provided to SSRN

No Address Available

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