NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Closing Small Open Economy Models

Stephanie Schmitt-Grohe, Martin Uribe

NBER Working Paper No. 9270
Issued in October 2002
NBER Program(s):Economic Fluctuations and Growth

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: (1) A model with an endogenous discount factor (Uzawa-type preferences); (2) A model with a debt-elastic interest-rate premium; (3) A model with convex portfolio adjustment costs; (4) A model with complete asset markets; and (5) A model without stationarity-inducing features. 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.

download in pdf format
   (286 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w9270

Published: Schmitt-Grohe, Stephanie & Uribe, Martin, 2003. "Closing small open economy models," Journal of International Economics, Elsevier, vol. 61(1), pages 163-185, October. citation courtesy of

Users who downloaded this paper also downloaded* these:
Garcia Cicco, Pancrazi, and Uribe w12629 Real Business Cycles in Emerging Countries?
Aguiar and Gopinath w10734 Emerging Market Business Cycles: The Cycle is the Trend
Neumeyer and Perri w10387 Business Cycles in Emerging Economies: The Role of Interest Rates
Obstfeld and Rogoff The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?
Justiniano and Preston w14547 Can Structural Small Open Economy Models Account for the Influence of Foreign Disturbances?
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us