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A dynamic small open economy model with involuntary unemployment

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  • Zuzana Janko
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    Abstract

    It is well known that real business cycle small open economy (SOE) models rely on Greenwood, Hercowitz, and Huffman (1988) preferences to match the countercyclical trade balance observed in open economies, as well as other second moments, while standard preferences à la King, Plosser, and Rebelo (1988) are commonly labelled `ineffective,' owing to their inability to yield the countercyclical trade balance. In this paper, I show that an SOE model with standard preferences and `involuntary' unemployment with efficient risk sharing can obtain a countercyclical trade balance and match main empirical regularities in small open economies.

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    Bibliographic Info

    Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

    Volume (Year): 44 (2011)
    Issue (Month): 4 (November)
    Pages: 1350-1368

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    Handle: RePEc:cje:issued:v:44:y:2011:i:4:p:1350-1368

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    Cited by:
    1. Laura Povoledo, 2013. "Modelling the sectoral allocation of labour in open economy models," Working Papers 20131312, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.

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