DP996 Business Cycles in a Small Open Economy
|Author(s):||Isabel Correia, Joao C Neves, Sérgio Rebelo|
|Publication Date:||July 1994|
|Keyword(s):||Business Cycles, Open Economy, Trade Balance|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=996|
This paper discusses a dynamic model that is consistent with the main empirical regularities of economic fluctuations in open economies. While other models in this class have relied on non-separable preferences or finite horizons to generate a realistic consumption volatility, we show that there is a simple class of time separable preferences that is consistent with the cyclical volatilities of the components of the national income accounts identity as well as with the countercyclical character of the balance of trade.