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Nontradable Goods in a Small Open Economy RBC

In: Dynamic Stochastic General Equilibrium Models

Author

Listed:
  • Hamilton Galindo Gil

    (Cleveland State University)

  • Alexis Montecinos Bravo

    (Sawyer Business School - Suffolk University
    Business School)

  • Marco Antonio Ortiz Sosa

    (University of the Pacific)

Abstract

This chapter extends the small open economy RBC model by incorporating nontradable goods and introducing two distinct types of tradable goods. These enhancements enable an exploration of the dynamics of the real exchange rate, a metric that gauges the cost of the domestic consumption basket in relation to its foreign counterpart. Our approach closely aligns with the framework proposed by Mendoza (Int Econ Rev 36:101–137, 1995). Using this model, we delve into the ramifications of terms of trade shocks, which are widely recognized as pivotal drivers of macroeconomic fluctuations, especially within developing economies marked by sizable commodity export sectors.

Suggested Citation

  • Hamilton Galindo Gil & Alexis Montecinos Bravo & Marco Antonio Ortiz Sosa, 2024. "Nontradable Goods in a Small Open Economy RBC," Springer Texts in Business and Economics, in: Dynamic Stochastic General Equilibrium Models, chapter 0, pages 367-400, Springer.
    • Handle: RePEc:spr:sptchp:978-3-031-58105-2_8
    DOI: 10.1007/978-3-031-58105-2_8
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