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|Title:||Productivity, preferences and UIP deviations in an open economy business cycle model |
Chadha, Jagjit S.
|Issue Date:||2008 |
|Series/Report no.:||School of Economics discussion papers 08,08|
|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.|
|Subjects:||current account dynamics|
real exchange rates
|Document Type:||Working Paper|
|Appears in Collections:||School of Economics Discussion Papers, University of Kent|
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