Journal Article
No. 2007-15 | December 20, 2007 (Version 2: May 14, 2008)
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 (2008). Technology Shocks and Employment in Open Economies. Economics: The Open-Access, Open-Assessment E-Journal, 1 (2007-15): 1—27 (Version 2).

Comments and Questions

Basanta Sahu - Content and coverage
December 21, 2007 - 11:43

It would have been iteresting if more countries of different structural and macro economic changes taken into account. This model should be extended.

Orlando Gomes - Comment on the paper
December 26, 2007 - 15:40

See comments in the attached file

Juha Tervala - A mistake in the Matlab file
January 29, 2009 - 20:57

I noticed a mistake in the Matlab file that solves the model (technologyshock.m): row 642 should be

B(21,ikstar) = -(1-beta*gamma);

instead of

B(21,ikstar) = -(beta*gamma);

I wish to emphasize that this mistake does not change any results of the published paper (Technology Shocks and Employment in ...[more]

... Open Economies). However, if the file is used to analyze the international transmission of a foreign technology shock, then the PCP version of the model gives wrong results.