Closing large open economy models

Bodenstein, Martin

Closing large open economy models

Journal of International Economics, 2011, vol. 84, issue 2, 160-177

Abstract: A large class of international business cycle models admits multiple locally isolated deterministic steady states, if the elasticity of substitution between traded goods is sufficiently low. I explore the conditions under which such multiplicity occurs and characterize the dynamic properties in the neighborhood of each steady state. Models with standard incomplete markets, portfolio costs, a debt-elastic interest rate, or an overlapping generations framework allow for multiple steady states, if the model features multiple steady states under financial autarchy. If the excess demand for the foreign traded good is increasing in the good's own price in a given steady state, the equilibrium dynamics around this steady state are unbounded. Otherwise, the dynamics are bounded and unique. By contrast, with Uzawa-type preferences, the steady state is always unique and the associated equilibrium dynamics are always bounded and unique. The same results obtain under complete markets.

Keywords: Stationarity; Incomplete; markets; Open; economy; Multiple; equilibria (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022199611000365
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Closing Large Open Economy Models (2006)
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: https://EconPapers.repec.org/RePEc:eee:inecon:v:84:y:2011:i:2:p:160-177

Access Statistics for this article

More articles in Journal of International Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().