DYNAMICS OF OPEN-ECONOMY BUSINESS-CYCLE MODELS: ROLE OF THE DISCOUNT FACTOR
This paper examines the dynamic implications of different preference formulations in open-economy business-cycle models with incomplete asset markets. In particular, we study two preference formulations: a time-separable preference formulation with a fixed discount factor, and a time-nonseparable pr...
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| Veröffentlicht in: | Macroeconomic dynamics 2003-04, Vol.7 (2), p.263-290 |
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| creator | Kim, Sunghyun Henry Kose, M. Ayhan |
| description | This paper examines the dynamic implications of different preference formulations in open-economy business-cycle models with incomplete asset markets. In particular, we study two preference formulations: a time-separable preference formulation with a fixed discount factor, and a time-nonseparable preference structure with an endogenous discount factor. We analyze the moment implications of two versions of an otherwise identical open-economy model—one with a fixed discount factor and the other with an endogenous discount factor—and study impulse responses to productivity and world real-interest-rate shocks. Our results suggest that business-cycle implications of the two models are quite similar under conventional parameter values. We also find that the approximation errors associated with the solutions of these two models are of the same magnitude. |
| doi_str_mv | 10.1017/S1365100501010252 |
| format | Article |
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| source | Cambridge University Press Journals Complete |
| subjects | Approximation Business cycles Economic theory Foreign investment Macroeconomics Preferences Productivity Wealth distribution |
| title | DYNAMICS OF OPEN-ECONOMY BUSINESS-CYCLE MODELS: ROLE OF THE DISCOUNT FACTOR |
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