Dynamics of Open Economy Models: What Is the Role of the Discount Factor?

Sunghyun Henry Kim () and Ayhan Kose ()

No 1231, Computing in Economics and Finance 1999 from Society for Computational Economics

Abstract: This paper examines the dynamic implications of the use of an endogenous discount factor in small open economy models. We first present a stochastic dynamic model of a small open economy with an endogenous discount factor. Then, we examine the same model with a fixed discount factor. We calibrate both models for a representative small open economy and then simulate them to examine the moment implications to help understand the impact of the preference formulation on model dynamics. We study the quantitative responses of the model variables to shocks in technology and real interest rates. Our results suggest that while the use of an endogenous discount factor helps researchers to define a stable stochastic steady state, the dynamic implications of the two models can be quite similar depending on the parameters of the model.

Date: 1999-03-01

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
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:sce:scecf9:1231

Access Statistics for this paper

More papers in Computing in Economics and Finance 1999 from Society for Computational Economics
Address: CEF99, Boston College, Department of Economics, Chestnut Hill MA 02467 USA
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().