World prices and business cycles in a small open input–output economy

The role of terms-of-trade shocks in driving economic fluctuations is revisited through a multisector small open economy model, where the various types goods can all be consumed and employed as inputs. Under this assumption, we show that, unlike conventional wisdom, may not necessarily trigger an boom for exporting country if its export are intensively or domestically, with limited scope substitution. We calibrate estimate proposed model using data from 15 emerging countries find that it performs better than standard to explain different impacts across documented by Schmitt-Groh Uribe (2018). Such results make excellent new framework extend analysis monetary policies effects price changes.