On the role of money in a business cycle model of a small open economy: The case of Spain

This paper examines the consequences of introducing a cash-in-advance constraint into a small open economy business cycle model for the Spanish case. A business cycle model is built extending Correia, Neves and Rebelo's (1995) small open economy framework and Cooley and Hansen's (1995) mon...

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Published inSpanish economic review Vol. 4; no. 3; pp. 159 - 177
Main Authors Giménez, Eduardo L, Martín-Moreno, José María
Format Journal Article
LanguageEnglish
Published Heidelberg Springer Nature B.V 01.09.2002
Subjects
Business cycles
Case studies
Consumption
Economics
Expenditures
Government spending
Growth models
Households
Labor supply
Money
Open economies
Spain
Volatility
Wages & salaries
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Summary:This paper examines the consequences of introducing a cash-in-advance constraint into a small open economy business cycle model for the Spanish case. A business cycle model is built extending Correia, Neves and Rebelo's (1995) small open economy framework and Cooley and Hansen's (1995) monetary economy. Money is introduced through a cash-in-advance constraint. The stochastic simulation of the model and its comparison to Spanish data show that the model is able to mimic i) the Dolado et al. puzzle, that is, the high volatility of private consumption for this economy; ii) the Dunlop-Tarshis observation, i.e., the negative correlation between real wages and hours worked; and iii) some cyclical features of the nominal dimension.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
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ISSN:1435-5469
1435-5477
DOI:10.1007/s101080200049