Journal Article
Abstract
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.
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The data set for this article can be found at: http://hdl.handle.net/1902.1/13665
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Comments and Questions
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.
It would have been iteresting if more countries of different structural and macro economic changes taken into account. This model should be extended.