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Welfare Effect of Productivity Shocks and Policy Implications in a Small Open Economy

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AbstractWe examine the welfare effect and policy implications of productivity shocks in a small open economy. With real business cycle models, productivity shocks are generally welfare improving. However, once we assign a big role to financial frictions, productivity shocks may become welfare deteriorating. These results are robust. Moreover, the policy implication hinges on preferences, policy specifications, and financial frictions.

Affiliations: 1: Department of Economics, East Carolina University Brewster A-427, Greenville, NC 27858, Email: ericsonr@ecu.edu, URL: http://www.w3.org/1999/xlink; 2: Department of Economics, East Carolina University Brewster A-432, Greenville, NC 27858, Email: liux@ecu.edu, URL: http://www.w3.org/1999/xlink

10.1163/156914912X635080
/content/journals/10.1163/156914912x635080
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/content/journals/10.1163/156914912x635080
2012-01-01
2016-12-03

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