Skip to main content
    • Aa
    • Aa


  • Laura Povoledo (a1)

This note evaluates whether a New Open Economy model can reproduce qualitatively the observed fluctuations of the tradeable and nontradeable sectors of the U.S. economy. The answer is positive: both in the model and in the data, the standard deviations of tradeable inflation, output, and employment are significantly higher than the standard deviations of the corresponding nontradeable sector variables. The key role in generating this result is played by the greater responsiveness of tradeable sector variables to monetary shocks.

Corresponding author
Address correspondence to: Laura Povoledo, Coldharbour Lane, Bristol BS16 1QY, UK; e-mail:
Hide All
Barsky Robert B., House Christopher L., and Kimball Miles S. (2007) Sticky-price models and durable goods. American Economic Review 97 (3), 984998.
Benigno Gianluca and Thoenissen Christoph (2003) Equilibrium exchange rates and UK supply side performance. Economic Journal 113, 103124.
Benigno Pierpaolo (2009) Price stability with imperfect financial integration. Journal of Money, Credit and Banking 41, 121149.
Bergin Paul R. (2003) Putting the “New Open Economy Macroeconomics” to a test. Journal of International Economics 60, 334.
Betts Caroline and Devereux Michael B. (2000) Exchange rate dynamics in a model of pricing to market. Journal of International Economics 50, 215244.
Burnside Craig, Eichenbaum Martin, and Rebelo Sergio (1993) Labor hoarding and the business cycle. Journal of Political Economy 101 (2), 245273.
Calvo Guillermo A. (1993) Staggered prices in a utility-maximising framework. Journal of Monetary Economics 12 (3), 383398.
Campa José Manuel and Goldberg Linda S. (2005) Exchange rate pass-through into import prices. Review of Economics and Statistics 87 (4), 679690.
Chari V. V., Kehoe Patrick J., and McGrattan Ellen R. (2002) Can sticky price models generate volatile and persistent real exchange rates? Review of Economic Studies 69 (3), 533563.
Corsetti Giancarlo and Pesenti Paolo (2005) International dimensions of optimal monetary policy. Journal of Monetary Economics 52 (2), 281305.
Faruqee Hamid, Laxton Douglas, Muir Dirk, and Pesenti Paolo (2005) Smooth Landing or Crash? Model-Based Scenarios of Global Current Account Rebalancing. NBER Working Paper 11583, National Bureau of Economic Research.
Ghironi Fabio (2000) Towards New Open Economy Macroeconometrics. Staff Report 100, Federal Reserve Bank of New York.
Justiniano Alejandro and Preston Bruce (2010a) Can structural small open-economy models account for the influence of foreign disturbances? Journal of International Economics 81 (1), 6174.
Justiniano Alejandro and Preston Bruce (2010b) Monetary policy and uncertainty in an empirical small open-economy model. Journal of Applied Econometrics 25 (1), 93128.
Lubik Thomas and Schorfheide Frank (2006) A Bayesian look at New Open Economy macroeconomics. In NBER Macroeconomics Annual 2005, vol. 20, pp. 313382. National Bureau of Economic Research, Inc.
Lubik Thomas and Schorfheide Frank (2007) Do central banks respond to exchange rate movements? A structural investigation. Journal of Monetary Economics 54 (4), 10691087.
Newey Whitney K. and West Kenneth D. (1987) A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix. Econometrica 55 (3), 703708.
Obstfeld Maurice and Rogoff Kenneth (1995) Exchange rate dynamics redux. Journal of Political Economy 103, 624660.
Obstfeld Maurice and Rogoff Kenneth S. (2005) Global current account imbalances and exchange rate adjustments. Brookings Papers on Economic Activity 36 (1), 67146.
Povoledo Laura (2010) The Volatility of the Tradeable and Nontradeable Sectors: Theory and Evidence. MPRA Paper 14852, University Library of Munich, Germany.
Rabanal Pau and Tuesta Vicente (2010) Euro-dollar real exchange rate dynamics in an estimated two-country model: An assessment. Journal of Economic Dynamics and Control 34 (4), 780797.
Rogerson Richard (1988) Recursive competitive equilibrium in multi-sector economies. International Economic Review 29 (3), 419430.
Uhlig Harald (1999) A Toolkit for Analyzing Nonlinear Dynamic Stochastic Models Easily. In Marimon Ramon and Scott Andrew (eds.), Computational Methods for the Study of Dynamic Economies, pp. 3061. Oxford, UK: Oxford University Press.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
Please enter your name
Please enter a valid email address
Who would you like to send this to? *



Full text views

Total number of HTML views: 0
Total number of PDF views: 13 *
Loading metrics...

Abstract views

Total abstract views: 110 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 19th October 2017. This data will be updated every 24 hours.