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Stationarity-Inducing Techniques in Small Open Economy Models with Collateral Constraints

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  • Vasiliki Dimakopoulou

    (University of Warwick)

Abstract

I show that the alternative stationarity-inducing techniques that have been used to “close” the standard small open economy model (like an endogenous discount factor and a debt-elastic interest rate premium) have different implications for the equilibrium dynamics once I add a commonly-used collateral-type financial constraint. Given this non-equivalence, my results further show that a small open economy model with a credit constraint that embodies an endogenous discount factor is superior to the debt-elastic interest rate model when one tries to match this kind of models to the data.

Suggested Citation

  • Vasiliki Dimakopoulou, 2021. "Stationarity-Inducing Techniques in Small Open Economy Models with Collateral Constraints," Open Economies Review, Springer, vol. 32(4), pages 725-738, September.
    • Handle: RePEc:kap:openec:v:32:y:2021:i:4:d:10.1007_s11079-020-09607-1
    DOI: 10.1007/s11079-020-09607-1
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    References listed on IDEAS

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    Cited by:

    1. Mavrigiannakis, Konstantinos & Sakkas, Stelios, 2024. "EU sanctions on Russia and implications for a small open economy: the case of Cyprus," LSE Research Online Documents on Economics 125336, London School of Economics and Political Science, LSE Library.
    2. Konstantinos Mavrigiannakis & Stelios Sakkas, 2024. "EU sanctions on Russia and implications for a small open economy: The case of Cyprus," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 200, Hellenic Observatory, LSE.

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    More about this item

    Keywords

    Small open economy; Stationarity; Borrowing constraints;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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