Closing open economy models
By: Martin Bodenstein
Series: International finance discussion papers -- no. 867; International finance discussion papers (Online) -- no. 867.
Publisher: Federal Reserve Board
Published: 2006
Place of publication: Washington, D.C
Language: eng
Format: [electronic resource] /
Description: "Several methods have been proposed to obtain stationarity in open economy models.  I find substantial qualitative and quantitative differences between these methods in a two-country framework, in contrast to the results of Schmitt-Groh ̌and Uribe (2003).  In models with a debt elastic interest rate premium or a convex portfolio cost, both the steady state and the equilibrium dynamics are unique if the elasticity of substitution between the domestic and the foreign traded good is high.  However, there are three steady states if the elasticity of substitution is sufficiently low.  With endogenous discounting, there is always a unique and stable steady state irrespective of the magnitude of the elasticity of substitution.  Similar to the model with convex portfolio costs or a debt elastic interest rate premium, though, there can be multiple convergence paths for low values of the elasticity"--Federal Reserve Board web site.
Notes: Title from PDF file as viewed on 11/13/2006.

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