TY  - JOUR
AU  - Erceg,Christopher J.
AU  - Gust,Christopher
AU  - López-Salido,David
TI  - The Transmission of Domestic Shocks in the Open Economy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13613
PY  - 2007
Y2  - November 2007
UR  - http://www.nber.org/papers/w13613
L1  - http://www.nber.org/papers/w13613.pdf
N1  - Author contact info:
Christopher Erceg
The Federal Reserve Board
Mail Stop 20
20th and C Street, N.W.
Washington, D.C.   20551
E-Mail: ercegc@frb.gov

Christopher Gust
Federal Reserve Board
Mail Stop 42B
20th and C Street, N.W.
Washington, D.C. 20551
E-Mail: christopher.j.gust@frb.gov

David Lopez-Salido
Federal Reserve Board
Mail Stop 76, Monetary Affairs
20th and C Streets, N.W.
Washington, DC 20551
Tel: 202 452 2566
E-Mail: David.J.Lopez-Salido@frb.gov
M3  - presented at "International Dimensions of Monetary Policy Conf.", June 11-13, 2007
AB  - This paper uses an open economy DSGE model to explore how trade openness affects the transmission of domestic shocks. For some calibrations, closed and open economies appear dramatically different, reminiscent of the implications of Mundell-Fleming style models. However, we argue such stark differences hinge on calibrations that impose an implausibly high trade price elasticity and Frisch elasticity of labor supply. Overall, our results suggest that the main effects of openness are on the composition of expenditure, and on the wedge between consumer and domestic prices, rather than on the response of aggregate output and domestic prices.
ER  -