Equity Returns and Business Cycles in Small Open Economies

Abstract

This is the first paper in the DSGE literature to match key business cycle moments and long-run equity returns in a small open economy with production. These results are achieved by introducing four modifications to a standard real business cycle model: (1) borrowing and lending costs are imposed to increase the volatility of the marginal rate of substitution over time; (2) capital adjustment costs are assumed to make equity returns more volatile; (3) GHH preferences are employed to smooth consumption and (4) a working capital constraint to generate countercyclical trade balances. Our results are based on data from Argentina, Brazil, and Chile.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 13 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.