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| Author: | Schmitt-Grohe, S. Uribe, M. |
| Title: | Closing small open economy models |
| Journal: | Journal of International Economics
2003 : OCT, VOL. 61:1, p. 163-185 |
| Index terms: | Open economy Business cycles |
| Language: | eng |
| Abstract: | 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. Five different specifications are considered. 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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