Closing International Real Business Cycle Models with Restricted Financial Markets

Michel Normandin () and Martin Boileau ()

No 05-03, Cahiers de recherche from HEC Montréal, Institut d'économie appliquée

Abstract: Several authors argue that international real business cycle (IRBC) models with incomplete financial markets offer a good explanation of the ranking of cross-country correlations. Unfortunately, this conclusion is suspect, because it is commonly based on an analysis of the near steady state dynamics using a linearized system of equations. The baseline IRBC model with incomplete financial markets does not possess a unique deterministic steady state and, as a result, its linear system of difference equations is not stationary. We show that the explanation of the ranking of cross-country correlations is robust to modifications that ensure a unique steady state and a stationary system of linear difference equations. We find, however, that the modifications affect the quantitative predictions regarding key macroeconomic variables.

Keywords: Incomplete markets; stationarity; cross-country correlations; wealth effects. (search for similar items in EconPapers)
JEL-codes: F32 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
Date: 2005-03
View list of references View citations in EconPapers

Downloads: (external link)
http://www2.hec.ca/iea/cahiers/2005/iea0503_mn.pdf (application/pdf)

Related works:
Working Paper: Closing International Real Business Cycle Models with Restricted Financial Markets (2005)
Journal Article: Closing international real business cycle models with restricted financial markets (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:iea:carech:0503

Ordering information: This working paper can be ordered from
Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7

The price is Free.

Access Statistics for this paper

More papers in Cahiers de recherche from HEC Montréal, Institut d'économie appliquée
Address: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7
Contact information at EDIRC.
Series data maintained by Patricia Power ().