Productivity, preferences and UIP deviations in an open economy business cycle model

Arnab Bhattacharjee, Qi Sun, Jagjit S. Chadha

    Research output: Working paper

    Abstract

    We show that a flex-price two-sector open economy DSGE model can explain the poor degree of international risk sharing and exchange rate disconnect. We use a suite of model evaluation measures and examine the role of (i) traded and non-traded sectors; (ii) financial market incompleteness; (iii) preference shocks; (iv) deviations from UIP condition for the exchange rates; and (v) creditor status in net foreign assets. We find that there is a good case for both traded and non-traded productivity shocks as well as UIP deviations in explaining the puzzles.
    Original languageEnglish
    Place of PublicationSt. Andrews
    PublisherScottish Institute for Research in Economics
    Publication statusPublished - 2008

    Publication series

    NameSIRE Discussion Papers

    Keywords

    • current account dynamics
    • real exchange rates
    • incomplete markets
    • financial frictions

    Fingerprint Dive into the research topics of 'Productivity, preferences and UIP deviations in an open economy business cycle model'. Together they form a unique fingerprint.

    Cite this