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On the role of money in a business cycle model of a small open economy: The case of Spain

Author

Listed:
  • Eduardo L. Giménez

    (Departamento de Fundamentos da Análise Económica e Historia e Institucións Económicas, Facultade de C.C. Económicas, Universidade de Vigo, E-36200 Vigo , Spain)

  • José María Martín-Moreno

    (Departamento de Fundamentos da Análise Económica e Historia e Institucións Económicas, Facultade de C.C. Económicas, Universidade de Vigo, E-36200 Vigo , Spain)

Abstract

This paper examines the consequences of introducing a cash-in-advance constraint into a small open economy business cycle model for the Spanish case. A business cycle model is built extending Correia, Neves and Rebelo's (1995) small open economy framework and Cooley and Hansen's (1995) monetary economy. Money is introduced through a cash-in-advance constraint. The stochastic simulation of the model and its comparison to Spanish data show that the model is able to mimic i) the Dolado et al. puzzle, that is, the high volatility of private consumption for this economy; ii) the Dunlop-Tarshis observation, i.e., the negative correlation between real wages and hours worked; and iii) some cyclical features of the nominal dimension.

Suggested Citation

  • Eduardo L. Giménez & José María Martín-Moreno, 2002. "On the role of money in a business cycle model of a small open economy: The case of Spain," Spanish Economic Review, Springer;Spanish Economic Association, vol. 4(3), pages 159-177.
  • Handle: RePEc:spr:specre:v:4:y:2002:i:3:p:159-177
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    Cited by:

    1. Martín-Moreno, José M. & Pérez, Rafaela & Ruiz, Jesús, 2014. "A real business cycle model with tradable and non-tradable goods for the Spanish economy," Economic Modelling, Elsevier, vol. 36(C), pages 204-212.

    More about this item

    Keywords

    Business cycle; cash-in-advance constraint; small open economy; Dunlop-Tarshis observation;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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