Business cycles in a small open economy

Isabel Correia; João C. Neves; Sergio Rebelo

doi:10.1016/0014-2921(94)00105-9

Business cycles in a small open economy

Isabel Correia, João C. Neves, Sergio Rebelo^*

^*Corresponding author for this work

Finance

Research output: Contribution to journal › Article › peer-review

130 Scopus citations

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	https://doi.org/10.1016/0014-2921(94)00105-9
State	Published - Jun 1995

Keywords

Business cycles
Open economy
Trade balance

ASJC Scopus subject areas

Finance
Economics and Econometrics

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AB - 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.

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KW - Trade balance

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