Productivity, Preferences and UIP deviations in an Open Economy Business Cycle Model

Arnab Bhattacharjee, Qi Sun and Jagjit Chadha

No 2008-53, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: We show that a flex-price two-sector open economy DSGE model can explain the poor degree of international risk sharing and exchange rate disconnect. We use a suite of model evaluation measures and examine the role of (i) traded and non-traded sectors; (ii) financial market incompleteness; (iii) preference shocks; (iv) deviations from UIP condition for the exchange rates; and (v) creditor status in net foreign assets. We find that there is a good case for both traded and non-traded productivity shocks as well as UIP deviations in explaining the puzzles.

Keywords: Current account dynamics; real exchange rates; incomplete markets; financial frictions (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (1)

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Journal Article: Productivity, Preferences and UIP Deviations in an Open Economy Business Cycle Model (2010)
Working Paper: Productivity, Preferences and UIP Deviations in an Open Economy Business Cycle Model (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:edn:sirdps:66

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