Closing Small Open Economy Models
- Topics:
- Investment and Capital Markets
- Tags:
- Asset Management,
- Business Operations,
- Dynamics,
- National Bureau Of Economic Research,
- Operational Planning
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Overview: The small open economy model with incomplete asset markets features a steady state that depends on initial conditions and equilibrium dynamics that possess a random walk component. A number of modifications to the standard model have been proposed to induce stationarity. This paper presents a quantitative comparison of these alternative approaches. The main finding of the paper is that all models deliver virtually identical dynamics at business-cycle frequencies, as measured by unconditional second moments and impulse response functions. The only noticeable difference among the alternative specifications is that the complete-asset-market model induces smoother consumption dynamics.
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Format: PDF | Size: 285KB | Date: Oct 2002 | Pages: 21
