Linear Approximation Methods and International Real Business Cycles with Incomplete Asset Markets
Most quantitative studies of international real business cycle (IRBC) models require the use of approximate solution methods. We solve an IRBC model with incomplete asset markets using King, Plosser and Rebelo's (1988) linear approximation method. We quantify the additional approximation error brought about by the existence of a unit root in the linear dynamic system and demonstrate that the symmetry of the model helps reduce this approximation error. A central finding is that the parametrizations which address the cross-country consumption correlation puzzle are precisely those where solutions may be least accurate.
|Date of creation:||01 Aug 2000|
|Date of revision:|
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Marianne Baxter & Mario J. Crucini, 1994.
"Business Cycles and the Asset Structure of Foreign Trade,"
NBER Working Papers
4975, National Bureau of Economic Research, Inc.
- Baxter, Marianne & Crucini, Mario J, 1995. "Business Cycles and the Asset Structure of Foreign Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 821-54, November.
- Baxter, M. & Crucini, M., 1991. "Business Cycles and the Asset Structure of Foreign Trade," RCER Working Papers 316, University of Rochester - Center for Economic Research (RCER).
- Marianne Baxter & Mario J. Crucini, 1992. "Business cycles and the asset structure of foreign trade," Discussion Paper / Institute for Empirical Macroeconomics 59, Federal Reserve Bank of Minneapolis.
- Robert Kollmann, 1996.
"Incomplete asset markets and the cross-country consumption correlation puzzle,"
ULB Institutional Repository
2013/7640, ULB -- Universite Libre de Bruxelles.
- Kollmann, Robert, 1996. "Incomplete asset markets and the cross-country consumption correlation puzzle," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 945-961, May.
- Francesco Giavazzi & Charles Wyplosz, 1985. "The Zero Root Problem: A Note on the Dynamic Determination of the Stationary Equilibrium in Linear Models," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 353-357.
- Arvanitis, Athanasios V & Mikkola, Anne, 1996. "Asset-Market Structure and International Trade Dynamics," American Economic Review, American Economic Association, vol. 86(2), pages 67-70, May.
- David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1993.
"International Business Cycles: Theory and Evidence,"
93-21, New York University, Leonard N. Stern School of Business, Department of Economics.
- David Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," NBER Working Papers 4493, National Bureau of Economic Research, Inc.
- Ravn, Morten O., 1997. "International business cycles in theory and in practice," Journal of International Money and Finance, Elsevier, vol. 16(2), pages 255-283, April.
- David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991.
"International real business cycles,"
146, Federal Reserve Bank of Minneapolis.
- Patrick J. Kehoe & Fabrizio Perri, 2000.
"International business cycles with endogenous incomplete markets,"
265, Federal Reserve Bank of Minneapolis.
- Patrick J. Kehoe & Fabrizio Perri, 2002. "International Business Cycles with Endogenous Incomplete Markets," Econometrica, Econometric Society, vol. 70(3), pages 907-928, May.
- Patrick J. Kehoe & Fabrizio Perri, 2000. "International Business Cycles with Endogenous Incomplete Markets," NBER Working Papers 7870, National Bureau of Economic Research, Inc.
- Chris I. Telmer, 1991.
"Asset Pricing Puzzles and Incomplete Markets,"
806, Queen's University, Department of Economics.
- Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
- Dotsey, Michael & Mao, Ching Sheng, 1992. "How well do linear approximation methods work? : The production tax case," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 25-58, February.
- Timothy J. Kehoe & David K. Levine, 1993.
"Debt-Constrained Asset Markets,"
Review of Economic Studies,
Oxford University Press, vol. 60(4), pages 865-888.
- King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341.
- Constantinides,George & Duffie,Darrel, 1992.
"Asset pricing with heterogeneous consumers,"
Discussion Paper Serie A
381, University of Bonn, Germany.
- Amable, Bruno & Henry, Jerome & Lordon, Frederic & Topol, Richard, 1994. "Strong hysteresis versus zero-root dynamics," Economics Letters, Elsevier, vol. 44(1-2), pages 43-47.
When requesting a correction, please mention this item's handle: RePEc:ecm:wc2000:1539. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.