Stationarity-Inducing Techniques in Small Open Economy Models with Collateral Constraints

Vasiliki Dimakopoulou ()
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Vasiliki Dimakopoulou: University of Warwick

Open Economies Review, 2021, vol. 32, issue 4, No 4, 725-738

Abstract: Abstract I show that the alternative stationarity-inducing techniques that have been used to “close” the standard small open economy model (like an endogenous discount factor and a debt-elastic interest rate premium) have different implications for the equilibrium dynamics once I add a commonly-used collateral-type financial constraint. Given this non-equivalence, my results further show that a small open economy model with a credit constraint that embodies an endogenous discount factor is superior to the debt-elastic interest rate model when one tries to match this kind of models to the data.

Keywords: Small open economy; Stationarity; Borrowing constraints (search for similar items in EconPapers)
JEL-codes: E44 F41 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11079-020-09607-1

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