TY  - JOUR
AU  - Flood,Robert P.
AU  - Hodrick,Robert J.
TI  - Money and the Open Economy Business Cycle:  A Flexible Price Model
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1967
PY  - 1986
Y2  - June 1986
UR  - http://www.nber.org/papers/w1967
L1  - http://www.nber.org/papers/w1967.pdf
N1  - Author contact info:
Robert Flood
Notre Dame
E-Mail: rflood1@nd.edu

Robert J. Hodrick
Graduate School of Business
Columbia University
3022 Broadway
New York, NY 10027
Tel: 212/854-3413
Fax: 212/316-9219
E-Mail: rh169@columbia.edu
AB  - This paper develops an open-economy model of the business cycle. The
nominal prices in the model are flexible and monetary nonneutrality is
developed using information confusion about the sources of disturbances to
demand coupled with differential persistence of demand shocks. Firms use
inventories to smooth their production, and consumers follow a stochastic
permanent income expenditure function. The major implication of the model
is that unperceived monetary disturbances improve the terms of trade and
increase real output in contrast to sticky price models in which the terms
of trade deteriorates. This implication of the model is examined
empirically.
ER  -