Bodenstein, M., Kamber, G. and Thoenissen, C. (2018) Commodity prices and labour market dynamics in small open economies. Journal of International Economics, 115. pp. 170-184. ISSN 0022-1996
Abstract
We show that a model of an advanced small open economy with exports in commodities and search and matching frictions in the labour market can match the impulse responses from a panel vector autoregression to an identified commodity price shock. Using a minimum distance strategy, we find that international financial risk sharing is low even for advanced small open economies. Moreover, a strong real exchange rate appreciation is key for an unexpected commodity price increase to induce a tightening of labour market conditions in the model that is in line with the empirical evidence. As in the case of technology shocks discussed by Shimer (2005), proper amplification of the commodity price shock requires a high value of the outside option for unemployed agents. However, vacancies and unemployment hardly respond whenever the real exchange rate channel is mute. These findings suggest the relevance of the open economy dimension for the transmission of demand-type shocks to the labour market more generally.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2018 Elsevier. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/). |
Keywords: | Commodity prices; Search and matching unemployment |
Dates: |
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Institution: | The University of Sheffield |
Academic Units: | The University of Sheffield > Faculty of Social Sciences (Sheffield) > Department of Economics (Sheffield) |
Depositing User: | Symplectic Sheffield |
Date Deposited: | 02 Oct 2018 08:21 |
Last Modified: | 07 Aug 2019 08:36 |
Status: | Published |
Publisher: | Elsevier |
Refereed: | Yes |
Identification Number: | 10.1016/j.jinteco.2018.09.009 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:136467 |