Collateral constraints, external imbalances and heterogeneous agents in a two-country world

Eleni Iliopulos

No 08-12, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: In this article, we focus on current account dynamics in large open economies characterized by debt-constrained heterogeneous agents and endogenous monetary policies. We incorporate three key features that have bulked large in the New Open Macroeconomics literature: i) home bias in trade ii) price rigidities and iii) durable goods (real properties). In order to limit agents’ willingness to consume and to (partially) insure creditors against the risk of default, we incorporate collateral constraints. We show that the impatience of collateral-constrained agents can be at the roots of permanent and sustainable external imbalances. Our model has a unique and dynamically determinate steady state, which is characterized by a positive level of debt. Our framework allows us to analyze the mechanisms at the roots of the (international) transmission of shocks and to focus on the implications of the monetary policy rules.

Keywords: open economy; durable goods; collateral constraints; sticky prices; simple monetary rules (search for similar items in EconPapers)
JEL-codes: E52 F32 F37 F41 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.univ-evry.fr/fileadmin/mediatheque/uev ... es/Epee/wp/08-12.pdf (application/pdf)

Related works:
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:eve:wpaper:08-12

Access Statistics for this paper

More papers in Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne Contact information at EDIRC.
Bibliographic data for series maintained by Samuel Nosel ().