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Exchange rates and international relative prices and quantities in equilibrium models with alternative preference specifications

Author

Listed:
  • Elvan Ozlu
  • Don E. Schlagenhauf
  • Jeffrey M. Wrase

Abstract

Dynamic open economy models with time-separable, deterministic utilities fail to account for observed dynamics of exchange rates and international relative prices and quantities. This paper examines the ability of extensions of existing open economy models to account for exchange rates, international relative prices, and international trade quantities. The extensions involve preferences with taste shocks and nontime-separable utilities in habit persistence form. Quantitative properties of calibrated versions of the models are examined in light of time series properties of key international variables.

Suggested Citation

  • Elvan Ozlu & Don E. Schlagenhauf & Jeffrey M. Wrase, 1996. "Exchange rates and international relative prices and quantities in equilibrium models with alternative preference specifications," Working Papers 96-10, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:96-10
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    File URL: http://www.philadelphiafed.org/research-and-data/publications/working-papers/1996/wp96-10.pdf
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    References listed on IDEAS

    as
    1. Stockman, Alan C & Tesar, Linda L, 1995. "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements," American Economic Review, American Economic Association, vol. 85(1), pages 168-185, March.
    2. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    3. Schlagenhauf, Don E. & Wrase, Jeffrey M., 1995. "Exchange rate dynamics and international effects of monetary shocks in monetary, equilibrium models," Journal of International Money and Finance, Elsevier, vol. 14(2), pages 155-177, April.
    4. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, pages 745-775.
    5. Stockman, Alan C. & Dellas, Harris, 1989. "International portfolio nondiversification and exchange rate variability," Journal of International Economics, Elsevier, vol. 26(3-4), pages 271-289, May.
    6. Schlagenhauf, Don E. & Wrase, Jeffrey M., 1995. "Liquidity and real activity in a simple open economy model," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 431-461, June.
    7. Ahmed, Shaghil & Ickes, Barry W. & Ping Wang & Byung Sam Yoo, 1993. "International Business Cycles," American Economic Review, American Economic Association, pages 335-359.
    8. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol. 81(4), pages 797-818, September.
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