Inflation Volatility and Growth in a Stochastic Small Open Economy: A Mixed Jump-Diffusion Approach
The aim of this paper is to examine how inflation volatility affects economic growth in a small open economy. To reach this goal, a stochastic macroeconomic model with a financial sector and incomplete financial markets (due to the inclusion of jumps) is developed. It is assumed that the general price level is driven by mixed diffusion-jump process, that is, a Brownian motion governs inflation and a Poisson process guides unexpected an sudden jumps in the price index. The economic growth rate is endogenously determined, in the equilibrium, as a function of parameters of the inflation process.
Volume (Year): 35 (2011)
Issue (Month): 2 (Julio-Diciembre)
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- Giuliano, Paola & Turnovsky, Stephen J., 2003.
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- Paola Giuliano & Stephen Turnovsky, 2000. "Intertemporal Substitution, Risk Aversion, and Economic Performance in a Stochastically Growing Open Economy," Working Papers 0002, University of Washington, Department of Economics.
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- Turnovsky, Stephen J, 1993. "Macroeconomic Policies, Growth, and Welfare in a Stochastic Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(4), pages 953-981, November.
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