Closing International Real Business Cycle Models with Restricted Financial Markets

Michel Normandin () and Martin Boileau

No 05-03, Cahiers de recherche from HEC Montréal, Institut d'économie appliquée

Abstract: Several authors argue that international real business cycle (IRBC) models with incomplete financial markets offer a good explanation of the ranking of cross-country correlations. Unfortunately, this conclusion is suspect, because it is commonly based on an analysis of the near steady state dynamics using a linearized system of equations. The baseline IRBC model with incomplete financial markets does not possess a unique deterministic steady state and, as a result, its linear system of difference equations is not stationary. We show that the explanation of the ranking of cross-country correlations is robust to modifications that ensure a unique steady state and a stationary system of linear difference equations. We find, however, that the modifications affect the quantitative predictions regarding key macroeconomic variables.

Keywords: Incomplete markets; stationarity; cross-country correlations; wealth effects. (search for similar items in EconPapers)
JEL-codes: F32 G15 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2005-03
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.hec.ca/iea/cahiers/2005/iea0503_mn.pdf (application/pdf)

Related works:
Journal Article: Closing international real business cycle models with restricted financial markets (2008)
Working Paper: Closing International Real Business Cycle Models with Restricted Financial Markets (2005)
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:iea:carech:0503

Ordering information: This working paper can be ordered from
Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7

The price is Free.

Access Statistics for this paper

More papers in Cahiers de recherche from HEC Montréal, Institut d'économie appliquée Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7. Contact information at EDIRC.
Bibliographic data for series maintained by Patricia Power ().