EconPapers    
Economics at your fingertips  
 

Can a small New Keynesian model of the world economy with risk‐pooling match the facts?

A. Patrick Minford, Zhirong Ou and Zheyi Zhu

International Journal of Finance & Economics, 2021, vol. 26, issue 2, 1993-2021

Abstract: We ask whether a model of the US and Europe trading with the rest of the world can match the facts of world behaviour in a powerful indirect inference test. One version has uncovered interest parity (UIP), the other risk‐pooling. Both pass the test but the most probable is risk‐pooling. This is consistent with risk‐pooling failing a number of single‐equation tests, as has been found in past work; we show that these tests will typically reject risk‐pooling when it in fact prevails. World economic behaviour under risk‐pooling shows much stronger spillovers than under UIP with opposite monetary responses to the exchange rate. We argue that the risk‐pooling model therefore demands more attention from policy‐makers.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1002/ijfe.1890

Related works:
Working Paper: Can a small New Keynesian model of the world economy with risk-pooling match the facts? (2019) Downloads
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:wly:ijfiec:v:26:y:2021:i:2:p:1993-2021

Ordering information: This journal article can be ordered from
http://jws-edcv.wile ... PRINT_ISSN=1076-9307

Access Statistics for this article

International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley

More articles in International Journal of Finance & Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2025-03-22
Handle: RePEc:wly:ijfiec:v:26:y:2021:i:2:p:1993-2021