The Risky Steady-State
We propose a simple quantitative method to linearize around the risky steady state of a small open economy. Unlike when the deterministic steady state is used, the net foreign asset position is well defined. We allow for both stochastic income and stochastic interest rate.
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705R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1985.
- Clarida, Richard H, 1987. "Consumption, Liquidity Constraints and Asset Accumulation in the Presence of Random Income Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 339-51, June.
- Michel Juillard & Ondra Kamenik, 2005. "Solving SDGE Models: Approximation About The Stochastic Steady State," Computing in Economics and Finance 2005 106, Society for Computational Economics.
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