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

Arnab Bhattacharjee, Jagjit S. Chadha, Qi Sun

    Research output: Working paper

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    Abstract

    We show that a ‡ex-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
    PublisherCentre for Dynamic Macroeconomic Analysis
    Number of pages55
    Publication statusPublished - 2008

    Publication series

    NameCDMA Working Paper Series
    Publisher School of Economics and Finance, University of St. Andrews
    No.CDMA08/08

    Keywords

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

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  • Research Output

    • 1 Article
    • 1 Discussion paper

    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., Sun, Q. & Chadha, J. S., 2008, St. Andrews: Scottish Institute for Research in Economics , 56 p. (SIRE Discussion Papers; no. 2008-53).

    Research output: Working paperDiscussion paper

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    Bhattacharjee, A., Chadha, J. S., & Sun, Q. (2008). Productivity, Preferences and UIP deviations in an Open Economy Business Cycle Model. (CDMA Working Paper Series; No. CDMA08/08). Centre for Dynamic Macroeconomic Analysis. http://ideas.repec.org/p/san/cdmawp/0808.html