Private consumption and sector price behaviour in the Spanish economy: a business cycle approach

Jos� Mar�a Mart�n-Moreno, Rafaela P�rez and Jesús Ru�z
Authors registered in the RePEc Author Service: Rafaela Perez

Applied Economics Letters, 2012, vol. 19, issue 9, 863-868

Abstract: In this article we examine the consequences of introducing tradable, nontradable and investment goods in a small open economy business cycle model in the case of Spain. The stochastic simulation of the model and its comparison to the Spanish economic data show that the model is able to mimic two prominent features of the Spanish cycle: (1) the dual inflation phenomenon, that is, the cyclical properties of the divergent behaviour between nontradable and tradable prices; and (2) the high volatility of private consumption relative to the volatility of output, a feature known as the Dolado et al. puzzle.

Date: 2012
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DOI: 10.1080/13504851.2011.607114

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