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Stationarity-inducing techniques in small open economy models with collateral constraints. (English) Zbl 1485.91149

Summary: I show that the alternative stationarity-inducing techniques that have been used to “close” the standard small open economy model (like an endogenous discount factor and a debt-elastic interest rate premium) have different implications for the equilibrium dynamics once I add a commonly-used collateral-type financial constraint. Given this non-equivalence, my results further show that a small open economy model with a credit constraint that embodies an endogenous discount factor is superior to the debt-elastic interest rate model when one tries to match this kind of models to the data.

MSC:

91B64 Macroeconomic theory (monetary models, models of taxation)
91G30 Interest rates, asset pricing, etc. (stochastic models)

Software:

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References:

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