Multicountry Modeling of Financial Markets

Jon Cockerline, John F. Helliwell, Robert Lafrance

NBER Working Paper No. 2736 (Also Reprint No. r1470)
Issued in October 1988
NBER Program(s):International Trade and Investment Program, International Finance and Macroeconomics Program

After a survey of alternative theoretical approaches to modeling financial markets, the domestic and international financial linkages of major multicountry models are examined and assessed. The properties of these models are compared by calculating the slopes of their UI and BP curves for the United States, Germany, and Japan. The BP curves (horizontal by assumption in several models) are almost always found to be flatter than the estimated UN curves. International differences in UI slopes are not generally greater than inter-model differences in the estimated slopes of LN curves for any given country. Models with rational or model-consistent expectations in their financial markers tend to show mere appreciation of the U.S. dollar, in response to fiscal expansion, than do models with adaptive expectations, although in both types of model the induced nominal exchange rate changes play a modest role in the transmission linking domestic spending to the current account. Suggestions are made for modeling the increasing globalization of financial markets, and for more explicit treatment of learning behaviour in the modeling of expectations.

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Document Object Identifier (DOI): 10.3386/w2736


  • Financial Sectors in Open Economies: Empirical Analysis and Policy Issues, edited by Peter Hooper, et al., pp. 305-356. Washington: Federal Reserve System, 1990.
  • John F. Helliwell & Jon Cockerline & Robert Lafrance, 1990. "Multicountry modeling of financial markets," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 305-363. citation courtesy of

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