Trends and cycles in small open economies: making the case for a general equilibrium approach

Kan Chen and Mario Crucini ()

Journal of Economic Dynamics and Control, 2016, vol. 72, issue C, 159-168

Abstract: Economic research into the causes of business cycles in small open economies is almost always undertaken using a partial equilibrium model. This approach is characterized by two key assumptions. The first is that the world interest rate is unaffected by economic developments in the small open economy, an exogeneity assumption. The second assumption is that this exogenous interest rate combined with domestic productivity is sufficient to describe equilibrium choices. We demonstrate the failure of the second assumption by contrasting general and partial equilibrium approaches to the study of a cross-section of small open economies. In doing so, we provide a method for modeling small open economies in general equilibrium that is no more technically demanding than the small open economy approach while preserving much of the value of the general equilibrium approach.

Keywords: Small open economy; Business cycle; Productivity (search for similar items in EconPapers)
JEL-codes: C55 C68 F41 F44 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Trends and cycles in small open economies: Making the case for a general equilibrium approach (2016)
Working Paper: Trends and cycles in small open economies: making the case for a general equilibrium approach (2016)
Working Paper: Trends and Cycles in Small Open Economies: Making The Case For A General Equilibrium Approach (2016)
Working Paper: Trends and Cycles in Small Open Economies: Making The Case For A General Equilibrium Approach (2014)
Working Paper: Trends and cycles in small open economies: making the case for a general equilibrium approach (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:72:y:2016:i:c:p:159-168

DOI: 10.1016/j.jedc.2016.07.009

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