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An International Economy with Country-Specific Money and Productivity Growth Processes

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  • Nicholas Ricketts
  • Thomas H. McCurdy

Abstract

This paper analyses a stochastic international growth model with money and country-specific forcing processes to productivity and money growth rates. Monies are required, owing to cash-in-advance constraints for consumption goods, but the liquidity constraints need not be binding for all periods. An individual can trade claims on future currency units for both countries through government bond markets. Each country specializes in the production of one of the goods, but individual agents can invest, subject to installation costs, in any available technology. The forcing processes are calibrated to a sample of U.S. and Canadian data. An equilibrium growth solution is computed numerically using the Marcet method of parameterized expectations. The interdependence implied by the model is illustrated by a series of impulse responses. Particular attention is focused on the asymmetry of the forcing processes across countries and the interaction between the real and the nominal components of the model.

Suggested Citation

  • Nicholas Ricketts & Thomas H. McCurdy, 1995. "An International Economy with Country-Specific Money and Productivity Growth Processes," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 141-162, November.
    • Handle: RePEc:cje:issued:v:28:y:1995:i:s1:p:141-162
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    Cited by:

    1. Christiano, Lawrence J. & Fisher, Jonas D. M., 2000. "Algorithms for solving dynamic models with occasionally binding constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 24(8), pages 1179-1232, July.
    2. Kollmann, Robert, 1995. "Consumption, real exchange rates and the structure of international asset markets," Journal of International Money and Finance, Elsevier, vol. 14(2), pages 191-211, April.
    3. Kollmann, R., 1996. "The Exchange rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities : A Quantitative Investigation," Other publications TiSEM c9241581-7b87-4f50-ab98-a, Tilburg University, School of Economics and Management.
    4. Ambler, Steve & Cardia, Emanuela & Zimmermann, Christian, 2004. "International business cycles: What are the facts?," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 257-276, March.
    5. Albert Marcet & David A. Marshall, 1994. "Solving nonlinear rational expectations models by parameterized expectations: convergence to stationary solutions," Working Paper Series, Macroeconomic Issues 94-20, Federal Reserve Bank of Chicago.
    6. Miquel Faig, 1997. "INVESTMENT IRREVERSIBILITY IN GENERAL EQUILIBRIUM: Capital Accumulation, Interest Rates, and the Risk Premium," Working Papers faig-97-01, University of Toronto, Department of Economics.
    7. Ambler, Steve & Cardia, Emanuela, 1995. "Les modèles réels de la transmission internationale du cycle économique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 71(2), pages 193-217, juin.
    8. Boileau, Martin, 1999. "Trade in capital goods and the volatility of net exports and the terms of trade," Journal of International Economics, Elsevier, vol. 48(2), pages 347-365, August.
    9. Ambler, Steve & Cardia, Emanuela & Zimmermann, Christian, 2002. "International transmission of the business cycle in a multi-sector model," European Economic Review, Elsevier, vol. 46(2), pages 273-300, February.
    10. Kollmann, Robert, 1996. "Incomplete asset markets and the cross-country consumption correlation puzzle," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 945-961, May.
    11. Bruno, C., 1997. "International capital movements and the locomotive effect," Economics Letters, Elsevier, vol. 56(3), pages 311-316, November.

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