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

Bhattacharjee, Arnab

Chadha, Jagjit S.

Sun, Qi

English

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 (1) traded and non-traded sectors; (2) financial market incompleteness; (3) preference shocks; (4) deviations from UIP condition for the exchange rates; and (5) 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

Heriot Watt Pure

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

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

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Productivity, Preferences and UIP deviations in an Open Economy Business Cycle Model

We show that a â€¡ex-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

for Dynamic Macroeconomic Analysis.

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EconStor (ZBW Kiel)

http://discovery.dundee.ac.uk/portal/en/research/productivity-preferences-and-uip-deviations-in-an-open-economy-business-cycle-model(0fae93d3-c4f5-4552-86bc-8eb63f4df5e3).html

Productivity, Preferences and UIP deviations in an Open Economy Business Cycle Model

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Heriot Watt Pure

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