Asset Bubbles and Foreign Interest Rate Shocks"
Jianjun Miao (),
Pengfei Wang () and
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Jing Zhou: Fudan University
Review of Economic Dynamics
We provide an estimated DSGE model of a small open economy with both domestic and international financial market frictions. Firms face credit constraints and trade an intrinsically useless asset. Low foreign interest rates are conducive to bubble formation. An asset bubble provides liquidity and relaxes credit constraints. It provides a powerful amplification and propagation mechanism. Our estimated model based on Bayesian methods explains the high volatilities of consumption and stock prices relative to output, countercyclical trade balance, and procyclical stock prices observed in the Mexican data over the period 1990Q1-2011Q4. (Copyright: Elsevier)
Keywords: Asset bubbles; Business cycles; Small open economy; Sudden stop; Liquidity; DSGE; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E32 E44 F41 (search for similar items in EconPapers)
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Working Paper: Asset Bubbles and Foreign Interest Rate Shocks (2017)
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