Abstract
This paper discusses a dynamic model that is consistent with the main empirical regularities of economic fluctuations in open economies. While other models in this class have relied on non-separable preferences or finite horizons to generate a realistic consumption volatility, we show that there is a simple class of time separable preferences that is consistent with the cyclical volatilities of the components of the national income accounts identity as well as with the countercyclical character of the balance of trade.
Original language | English (US) |
---|---|
Pages (from-to) | 1089-1113 |
Number of pages | 25 |
Journal | European Economic Review |
Volume | 39 |
Issue number | 6 |
DOIs | |
State | Published - Jun 1995 |
Funding
We benefited greatly from the comments and suggestionso f Marianne Baxter, Jeremy Greenwood, Robert King, Finn Kydland, Enrique Mendoza, Jose Scheinkman, and an anonymous referee, as well as from feedback provided by participantsa t the Journal of Economic Dynamics and Control Conference held in Capri, and at the European Economic Association Meeting held in Cambridge. Rebel0 gratefully acknowledgesf inancial support from the NBER’s Olin Fellowship. The usual disclaimer applies.
Keywords
- Business cycles
- Open economy
- Trade balance
ASJC Scopus subject areas
- Finance
- Economics and Econometrics