Money and Business Cycle in a Small Open Economy
This paper examines the consequences of introducing a cash-in-advance constraint in a small open economy business cycle model for the Spanish economy. A business cycle model is built extending Correia, Neves and Rebelo (1995) small open economy framework and Cooley and Hansen (1995) monetary economy. Money is introduced through a cash-in-advance constraint. The stochastic simulation of the model and its comparison with Spanish data shows that the model is able to mimic the real dimension of the business cycle. In particular the high volatility of consumption for the Spanish economy is greatly reproduced. Some features of the nominal dimension are also reproduced. As a negative result the high correlation between money and output, and labor market relations are not reproduced.
|Date of creation:||2000|
|Date of revision:|
|Publication status:||Published in Spanish Economic Review, 2002, pages 159-177|
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