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Creator: Backus, David and Kehoe, Patrick J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 348 Abstract:
We derive the empirical implications of a popular class of international macroeconomic models. The real economy is a stochastic exchange model with complete markets. A standard result is that cross-country risk sharing implies perfect correlation between consumption paths across countries. With mild restrictions on the endowment process ii also implies a positive correlation between net exports and output in every country. We introduce money using cash-in-advance constraints and show that the implications for real variables carry over into the monetary economy. These dichotomy and neutrality propositions generalize those in the literature to stochastic environments with heterogeneous agents, and do not require the cash-in-advance constraint to bind in every state. They imply that any correlation between the nominal exchange rate and the balance of trade can be made consistent with the theory.
Palavra-chave: Government finance, Monetary policy, Cash-in-advance, Risk-sharing, and Exchange rates Sujeito: F30 - International Finance: General, D46 - Value Theory, and E32 - Business Fluctuations; Cycles
Creator: Backus, David and Kehoe, Patrick J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 348 Abstract: Palavra-chave: Government finance, Risk-sharing, Exchange rates, Cash-in-advance, and Monetary policy Sujeito: F30 - International Finance: General, E32 - Business Fluctuations; Cycles, and D46 - Value Theory