DP8751 The Risky Steady-State

Author(s): Nicolas Coeurdacier, Hélène Rey, Pablo Winant
Publication Date: January 2012
Keyword(s): steady state
JEL(s): E10, F41
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8751

We propose a simple quantitative method to linearize around the risky steady state of a small open economy. Unlike when the deterministic steady state is used, the net foreign asset position is well defined. We allow for both stochastic income and stochastic interest rate.