Eduardo L. Gimenez (Departamento de Fundamentos de Analisis Economico e Historia Economica. Universidad de Vigo.) Jose M. Martin-Moreno (Departamento de Fundamentos de Analisis Economico e Historia Economica. Universidad de Vigo.)
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This paper examines the consequences of introducing a cash-in-advance constraint in a small open economy business cycle model for the Spanish economy. A business cycle model is built extending Correia, Neves and Rebelo (1995) small open economy framework and Cooley and Hansen (1995) monetary economy. Money is introduced through a cash-in-advance constraint. The stochastic simulation of the model and its comparation with Spanish data shows that the model is able to mimic the real dimension of the business cycle. In particular the high volatility of compsumtion for the Spanish economy is greatly reproduced. Some features of the nominal dimension are also reproduced. As a negative result the high correlation between money and output, and labor market relations are not reproduced.
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Paper provided by IDEGA - Instituto Universitario de Estudios e Desenvolvemento de Galicia in its series Documentos de trabajo - Análise Económica with number
0012.