Business Cycle Dynamics in a Small Open Economy

摘要

The small open economy (SOE) real business cycle model of Mendoza (AER, 1991, 797-818) uses Greenwood, Hercowitz, and Hoffman (AER, 1988, 402-17) preferences in order to yield a countercyclical trade balance present in small open economies such as Canada, wherein the correlation equals -0.29 (based on quarterly data). Subsequent attempts by Schmitt-Grohe and Uribe (JIE, 2001, 163-85) and Correia, Neves, and Rebelo (EER, 1995, 1089-113) to incorporate standard preferences of King, Plosser, and Rebelo (JME, 1988, 195-232) to the model have been unsuccessful in that they lead to a positive correlation between output and the trade balance.