Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5057842 | Economics Letters | 2017 | 4 Pages |
â¢Tradables consumption shares justify the difference in trade balance volatility.â¢These measures are related through fluctuations in collateral prices.â¢This study employs nonlinear stochastic simulations for endowment economies.â¢A collateral constraint explains plausible size and diversity of the volatility.â¢Researchers must select the form of collateral constraint carefully.
This paper aims to explain the difference in trade balance volatility between emerging and developed small open economies under a simple endowment economy model. The results of the nonlinear simulations with occasionally binding collateral constraints show that in a model with collateral capital, the difference can be explained by the share of tradables in consumption.