Working Paper: CEPR ID: DP3083
Authors: Assaf Razin; Chiwa Yuen
Abstract: The Paper extends Woodford?s (2000) analysis of the closed economy Phillips curve to an open economy with both commodity trade and capital mobility. We show that consumption smoothing, which comes with the opening of the capital market, raises the degree of strategic complementarity among monopolistic competitive suppliers, thus rendering prices more sticky and magnifying output responses to nominal GDP shocks.
Keywords: capital mobility; new keynesian phillips curve; trade
JEL Codes: E12; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Opening of capital markets (G10) | Consumption smoothing (D15) |
| Consumption smoothing (D15) | Increased strategic complementarity (F12) |
| Increased strategic complementarity (F12) | Greater price stickiness (E31) |
| Greater price stickiness (E31) | Magnified output responses to nominal GDP shocks (E19) |