Productivity, Preferences and UIP deviations in an Open Economy Business Cycle Model

Arnab Bhattacharjee, Qi Sun, Jagjit S. Chadha

    Research output: Working paperDiscussion paper

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    Abstract

    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.
    Original languageEnglish
    Place of PublicationSt. Andrews
    PublisherScottish Institute for Research in Economics
    Number of pages56
    Publication statusPublished - 2008

    Publication series

    NameSIRE Discussion Papers
    PublisherScottish Institute for Research in Economics
    No.2008-53

    Keywords

    • current account dynamics
    • real exchange rates
    • incomplete markets
    • financial frictions

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  • Research Output

    Productivity, preferences and UIP deviations in an open economy business cycle model

    Bhattacharjee, A., Chadha, J. S. & Sun, Q., 1 Jul 2010, In : Open Economies Review. 21, 3, p. 365-391 27 p.

    Research output: Contribution to journalArticle

  • 2 Citations (Scopus)

    Productivity, Preferences and UIP deviations in an Open Economy Business Cycle Model

    Bhattacharjee, A., Chadha, J. S. & Sun, Q., 2008, St. Andrews: Centre for Dynamic Macroeconomic Analysis, 55 p. (CDMA Working Paper Series; no. CDMA08/08).

    Research output: Working paper

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  • Cite this

    Bhattacharjee, A., Sun, Q., & Chadha, J. S. (2008). Productivity, Preferences and UIP deviations in an Open Economy Business Cycle Model. (SIRE Discussion Papers; No. 2008-53). Scottish Institute for Research in Economics . http://ideas.repec.org/p/edn/sirdps/66.html