Discussion Paper

No. 2007-40 | August 31, 2007
Technology Shocks and Employment in Open Economies


A growing body of empirical evidence suggests that a positive technology shock leads to a temporary decline in employment. A two-country model is used to demonstrate that the open economy dimension can enhance the ability of sticky price models to account for the evidence. The reasoning is as follows. An improvement in technology appreciates the nominal exchange rate. Under producer-currency pricing, the exchange rate appreciation shifts global demand toward foreign goods away from domestic goods. This causes a temporary decline in domestic employment. If the expenditure-switching effect is sufficiently strong, a technology shock also has a negative effect on output in the short run.

JEL Classification:

E24, E32, F41



Cite As

Juha Tervala (2007). Technology Shocks and Employment in Open Economies. Economics Discussion Papers, No 2007-40, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2007-40

Comments and Questions

Anonymous - Referee Report
September 20, 2007 - 09:57

see attached file

Juha Tervala - Response to Referee 1
October 17, 2007 - 12:04

See attached file

Anonymous - Invited Reader Comment
October 23, 2007 - 08:05

see attached file

Liam Graham - Associate Editor's Decision
October 24, 2007 - 14:19

This is a fine paper, which makes an interesting contribution to a hotly-debated question.

Having read the two reports and the author’s response to them, I’d like to suggest the author produces a revised version taking into account all the comments made.

I think the second referee’s idea ...[more]

... of making the codes available is an excellent one. I’d be grateful if you could do this, and particularly address the following points to ensure the code is very easy to understand:

1. A separate document should set out the linearised system, explain carefully the solution technique and give the reader some pointers to how the code works.

2. The code should include:

- carefully commenting
- links from equations in the code to their counterparts in the text.
- features to make it easy for the reader to reproduce the figures. An example would be to include a switch to control whether PCP or LCP is used

I look forward to reading the revised version.

Anonymous - Invited Reader Comment
October 24, 2007 - 15:31

see attached file

John Fender - Invited Reader Comment
November 09, 2007 - 12:04

see attached file

Juha Tervala - Reply
November 27, 2007 - 15:12

See attached file