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The Liquidity Effect in a Small Open Economy Model

Author

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  • Javier Andrés
  • J. David López-Salido
  • Javier Vallés

Abstract

In this paper we construct a dynamic stochastic general equilibrium model for a small open economy allowing for perfect capital mobility. The model incorporates price rigidities in monopolistically competitive goods and labor markets and real rigidities in the form of capital adjustment costs. The model matches some nominal and real business cycle features observed in European economies and produces a significant output response to monetary policy shocks.

Suggested Citation

  • Javier Andrés & J. David López-Salido & Javier Vallés, 1999. "The Liquidity Effect in a Small Open Economy Model," Working Papers 9902, Banco de España.
    • Handle: RePEc:bde:wpaper:9902
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    Cited by:

    1. Eduardo L. Giménez & José María Martín-Moreno, "undated". "Title: Monetary shocks and business cicle in the Spanish economy," Studies on the Spanish Economy 43, FEDEA.

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    More about this item

    Keywords

    GENERAL EQUILIBRIUM ; STOCHASTIC MODELS ; MACROECONOMICS;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

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