International Economics and Economic Policy

, Volume 10, Issue 2, pp 217–245 | Cite as

Transmission mechanisms of real stochastic shocks in a small open economy

  • Eduardo L. Giménez
  • José María Martín-Moreno
Original Paper
  • 165 Downloads

Abstract

We offer a qualitative evaluation of the transmission mechanisms of two real shocks, a productivity shock and a government expenditure shock in Walrasian business cycle models. The analysis is developed in a monetary small open economy business cycle model, a set-up general enough to study the effects of the two shocks on both real and nominal variables. Qualitative and graphical displays indicate properties of Real Business Cycles that are able to reproduce observed cyclical patterns, independently of the calibration used for different economies. These qualitative findings match the quantitative results found in the literature, and rationalize some disparity findings (such as the cyclicity pattern of prices) and failures (such as the Dunlop–Tarshis observation). We suggest that understanding the underlying qualitative intuitions of these models may be of great help in tackling new puzzles in this area.

Keywords

Small open economy Real business cycle theory Cash-in-advance constraint Productivity shock Government expenditure shock 

JEL Classification

E32 E37 E47 E52 F41 

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Copyright information

© Springer-Verlag 2012

Authors and Affiliations

  • Eduardo L. Giménez
    • 1
    • 2
  • José María Martín-Moreno
    • 1
    • 2
  1. 1.Departamento de Fundamentos da Análise Económica e Historia e Institucións EconómicasUniversidade de VigoVigoSpain
  2. 2.rede (research in economic, business and the environment)Universidade de VigoVigoSpain

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