Open AccessThe Macroeconomic Effects of a Productivity Shock in the Nontraded Goods Sector
Author(s) -
Juha Tervala
Publication year - 2007
Publication title -
ekonomika
Language(s) - English
Resource type - Journals
eISSN - 2424-6166
pISSN - 1392-1258
DOI - 10.15388/ekon.2007.17602
Subject(s) - economics , productivity , shock (circulatory) , small open economy , dynamic stochastic general equilibrium , general equilibrium theory , open economy , macroeconomics , monetary economics , goods and services , directive , international economics , economy , monetary policy , medicine , exchange rate , computer science , programming language
This paper analyses the macroeconomic effects of a productivity shock in the nontraded goods sector using a small open economy model. The paper develops a simple dynamic general equilibrium model offering intuitive explanations of how a productivity shock affects a small open economy. The model gives a surprisingly pessimistic view on the benefits of productivity shocks. For example, a productivity shock has, except for one special case, a negative effect on the output of nontraded goods in the short run. This result differs from the results of RBC models. The paper gives an interesting insight into the possible effects that the introduction of the EU (European Union) services directive or GATS (General Agreement on Trade in Services) agreement may have.