Working Paper: CEPR ID: DP996
Authors: Isabel Correia; Joao C. Neves; Sergio Rebelo
Abstract: This paper discusses a dynamic model that is consistent with the main empirical regularities of economic fluctuations in open economies. While other models in this class have relied on non-separable preferences or finite horizons to generate a realistic consumption volatility, we show that there is a simple class of time separable preferences that is consistent with the cyclical volatilities of the components of the national income accounts identity as well as with the countercyclical character of the balance of trade.
Keywords: business cycles; open economy; trade balance
JEL Codes: E32; F32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| net foreign asset holdings (F32) | trade balance volatility (F14) |
| preference structure (D11) | consumption variability (D11) |
| government expenditures (H59) | consumption (E21) |
| government expenditures (H59) | investment (G31) |
| productivity changes (O49) | consumption (E21) |
| productivity changes (O49) | labor supply (J20) |