Productivity, Preferences and UIP deviations in an Open Economy Business Cycle Model
Research output: Working paper › Discussion paper
|Name||SIRE Discussion Papers|
|Publisher||Scottish Institute for Research in Economics|
We show that a flex-price two-sector open economy DSGE model can explain the poor degree of international risk sharing and exchange rate disconnect. We use a suite of model evaluation measures and examine the role of (i) traded and non-traded sectors; (ii) financial market incompleteness; (iii) preference shocks; (iv) deviations from UIP condition for the exchange rates; and (v) creditor status in net foreign assets. We find that there is a good case for both traded and non-traded productivity shocks as well as UIP deviations in explaining the puzzles.
Research output: Contribution to journal › Article
Research output: Working paper