Document Type

Article

Journal/Book Title/Conference

Economics Research Institute Study Paper

Volume

7

Publisher

Utah State University Department of Economics

Publication Date

2000

First Page

1

Last Page

28

Abstract

This paper analyzes a two-country general equilibrium model with multiple stages of production and sticky prices. Working through the cross-country input-output relations and endogenous price stickiness, the model generates the observed patterns in international aggregate comovements following monetary shocks. In particular, both output and consumption comove across countries, and output correlation is larger than consumption correlation, as in the data. The model also generates persistent fluctuations of real exchange rates. Thus, vertical international trade plays an important role in propagating monetary shocks in an open economy.


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