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Money and Business Cycle in a Small Open Economy

Author

Listed:
  • Eduardo L. Giménez

    (Departamento de Fundamentos da Análise Económica e Historia EconÛmica. Universidade de Vigo.)

  • José M. Martín-Moreno

    (Departamento de Fundamentos da Análise Económica e Historia Económica. Universidade de Vigo.)

Abstract

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 comparison with Spanish data shows that the model is able to mimic the real dimension of the business cycle. In particular the high volatility of consumption 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.

Suggested Citation

  • Eduardo L. Giménez & José M. Martín-Moreno, 2000. "Money and Business Cycle in a Small Open Economy," Documentos de trabajo - Analise Economica 0012, IDEGA - Instituto Universitario de Estudios e Desenvolvemento de Galicia.
    • Handle: RePEc:edg:anecon:0012
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    Keywords

    Business Cycle; Cash-in-Advance Constraint; Small Open Economy;
    All these keywords.

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