Closing international real business cycle models with restricted financial markets
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. This conclusion is suspect, because it is based on an analysis of the near steady state dynamics using a linearized system of equations. The baseline IRBC model with incomplete 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 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 of the model.
Year of publication: |
2008
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Authors: | Boileau, Martin ; Normandin, Michel |
Published in: |
Journal of International Money and Finance. - Elsevier, ISSN 0261-5606. - Vol. 27.2008, 5, p. 733-756
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Publisher: |
Elsevier |
Saved in:
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