2200 Post Oak Blvd
Houston, TX 77056
Institutional Affiliation: BBVA Research
NBER Working Papers and Publications
|July 2016||Trends and Cycles in Small Open Economies: Making The Case For A General Equilibrium Approach|
with Mario Crucini: w22460
Economic research into the causes of business cycles in small open economies is almost always undertaken using a partial equilibrium model. This approach is characterized by two key assumptions. The first is that the world interest rate is unaffected by economic developments in the small open economy, an exogeneity assumption. The second assumption is that this exogenous interest rate combined with domestic productivity is sufficient to describe equilibrium choices. We demonstrate the failure of the second assumption by contrasting general and partial equilibrium approaches to the study of a cross-section of small open economies. In doing so, we provide a method for modeling small open economies in general equilibrium that is no more technically demanding than the small open economy approa...
Published: Chen, Kan & Crucini, Mario J., 2016. "Trends and cycles in small open economies: making the case for a general equilibrium approach," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 159-168. citation courtesy of