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A dynamic small open economy model with involuntary unemployment

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  • Zuzana Janko

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.

Suggested Citation

  • Zuzana Janko, 2011. "A dynamic small open economy model with involuntary unemployment," Canadian Journal of Economics, Canadian Economics Association, vol. 44(4), pages 1350-1368, November.
    • Handle: RePEc:cje:issued:v:44:y:2011:i:4:p:1350-1368
    DOI: 10.1111/j.1540-5982.2011.01677.x
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    Cited by:

    1. Laura Povoledo, 2017. "Modelling the sectoral allocation of labour in open economy models," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(3), pages 685-710, August.

    More about this item

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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