RT Journal Article
T1 Near unit root small open economies
A1 Seoane, Hernán
AB The marginal utility of wealth in incomplete markets small open economy models follows a unit root process. I study the nonlinear properties of devices often used to remove the unit root and I find that they generate different dynamics when matching emerging markets. Models with endogenous discount factors reinforce consumption response to shocks and increase the countercyclicality of the trade balance to output ratio. Conversely, models with debt frictions ameliorate the responses of consumption and trade balance. Hence, to generate dynamics similar to those in emerging economies, the debt frictions need to be small, inducing a near unit root behavior in their Euler equations. This difference across models is hidden when matching developed economies because of consumption smoothing and the mild countercyclicality of the trade balance.
PB Elsevier
SN 0165-1889
YR 2015
FD 2015-04-01
LK https://hdl.handle.net/10016/34996
UL https://hdl.handle.net/10016/34996
LA eng
DS e-Archivo
RD 27 jul. 2024