Non-Stationarity and Instability in Small Open Economy Models - Economic Quarterly Fall 2007
Article
Non-Stationarity and Instability in Small Open Economy Models
Non-Stationarity and Instability in Small Open Economy Models - Economic Quarterly Fall 2007
Non-Stationarity and Instability in Small Open Economy Models - Economic Quarterly Fall 2007
Fall
2007
Non-Stationarity and Instability in Small Open Economy Models
Thomas A. Lubik {tholub1}
<p>It is well-known that the small open-economy model with incomplete asset markets leads to a non-stationary (linearized) solution. This article shows that stationarity-inducing modifications, such as debt-elastic interest rates, can imply non-existence of the rational expectations equilibrium. Alternative specifications are then suggested and discussed that avoid this problem.</p>
/RichmondFedOrg/publications/research/economic_quarterly/2007/fall/pdf/lubik.pdf
Inflation & Monetary Policy
1
Business Cycles
Monetary Policy
<p>It is well-known that the small open-economy model with incomplete asset markets leads to a non-stationary (linearized) solution. This article shows that stationarity-inducing modifications, such as debt-elastic interest rates, can imply non-existence of the rational expectations equilibrium. Alternative specifications are then suggested and discussed that avoid this problem.</p>
Economic Quarterly
Fall
2007