A dynamic small open economy model with involuntary unemployment

A dynamic small open economy model with involuntary unemployment

0.00 Avg rating0 Votes
Article ID: iaor201111990
Volume: 44
Issue: 4
Start Page Number: 1350
End Page Number: 1368
Publication Date: Nov 2011
Journal: Canadian Journal of Economics/Revue canadienne d'conomique
Authors:
Keywords: simulation, risk
Abstract:

It is well known that real business cycle small open economy (SOE) models rely on Greenwood, Hercowitz, and Huffman (1988) preferences to match the countercyclical trade balance observed in open economies, as well as other second moments, while standard preferences la King, Plosser, and Rebelo (1988) are commonly labelled ‘ineffective,’ owing to their inability to yield the countercyclical trade balance. In this paper, I show that an SOE model with standard preferences and ‘involuntary’ unemployment with efficient risk sharing can obtain a countercyclical trade balance and match main empirical regularities in small open economies.

Reviews

Required fields are marked *. Your email address will not be published.