A dynamic small open economy model with involuntary unemployment
Zuzana Janko
Canadian Journal of Economics, 2011, vol. 44, issue 4, 1350-1368
Abstract:
It is well known that real business cycle small open economy (SOE) models rely on Greenwood, Hercowitz, and Huffman (1988) preferences to match the countercyclical trade balance observed in open economies, as well as other second moments, while standard preferences à la King, Plosser, and Rebelo (1988) are commonly labelled `ineffective,' owing to their inability to yield the countercyclical trade balance. In this paper, I show that an SOE model with standard preferences and `involuntary' unemployment with efficient risk sharing can obtain a countercyclical trade balance and match main empirical regularities in small open economies.
JEL-codes: E32 F41 (search for similar items in EconPapers)
Date: 2011
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