Closing international real business cycle models with restricted financial markets

Martin Boileau and Michel Normandin ()

Journal of International Money and Finance, 2008, vol. 27, issue 5, 733-756

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. This conclusion is suspect, because it is based on an analysis of the near steady state dynamics using a linearized system of equations. The baseline IRBC model with incomplete 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 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 of the model.

Date: 2008
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Citations: View citations in EconPapers (25)

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Related works:
Working Paper: Closing International Real Business Cycle Models with Restricted Financial Markets (2005)
Working Paper: Closing International Real Business Cycle Models with Restricted Financial Markets (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:27:y:2008:i:5:p:733-756

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