An International Economy with Country-Specific Money and Productivity Growth Processes
Canadian Journal of Economics, Vol. XXVIII, pp. 141-162, 1995
23 Pages Posted: 8 Oct 2011
Date Written: 1995
Abstract
This paper analyses a stochastic international growth model with money and country-specific forcing processes for productivity and money growth rates. Monies are required, owing to cash-in-advance constraints for consumption goods, but the liquidity constraints need not be binding for all periods. An individual can trade claims on future currency units for both countries through government bond markets. Each country specializes in the production of one of the goods, but individual agents can invest, subject to installation costs, in any available technology. The forcing processes are calibrated to a sample of U.S. and Canadian data. An equilibrium growth solution is computed numerically using the Marcet method of parameterized expectations. The interdependence implied by the model is illustrated by a series of impulse responses. Particular attention is focused on the asymmetry of the forcing processes across countries and the interaction between the real and the nominal components of the model.
Keywords: numerical general equilibrium solution, parameterized expectations, stochastic international growth model, cash-in-advance inequality constraints
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Covariation of Risk Premiums and Expected Future Spot Exchange Rates
-
The Time-Variation of Risk and Return in the Foreign Exchange and Stock Markets
-
Are Exchange Rates Excessively Variable?
By Jeffrey A. Frankel and Richard Meese
-
International Lending and Borrowing in a Stochastic Sequence Equilibrium
-
Recent Estimates of Time-Variation in the Conditional Variance and in the Exchange Risk Premium
-
Exchange Rate Volatility and its Impact on the Transaction Costs of Covered Interest Rate Parity
By Ramaprasad Bhar, Toan M. Pham, ...
-
Foreign Exchange Market Efficiency, Speculators, Arbitrageurs and International Capital Flows
By Tin Nguyen