Working Paper: CEPR ID: DP8751
Authors: Nicolas Coeurdacier; Hélène Rey; Pablo Winant
Abstract: We propose a simple quantitative method to linearize around the risky steady state of a small open economy. Unlike when the deterministic steady state is used, the net foreign asset position is well defined. We allow for both stochastic income and stochastic interest rate.
Keywords: steady state
JEL Codes: E10; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| risky steady state (C62) | net foreign asset position (F32) |
| expected risk (D81) | capital accumulation (E22) |
| income risk (G52) | net foreign asset positions (F32) |
| covariance of consumption with stochastic interest rate (D15) | demand for foreign assets (G15) |