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Effect of restricting asset trade in dynamic equilibrium models
Author(s) -
Letendre MarcAndré
Publication year - 2004
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/j.1468-0106.2004.00234.x
Subject(s) - economics , asset (computer security) , bond , econometrics , general equilibrium theory , business cycle , productivity , point (geometry) , work (physics) , persistence (discontinuity) , point estimation , complete market , microeconomics , macroeconomics , mathematics , mechanical engineering , statistics , geometry , computer security , geotechnical engineering , finance , computer science , engineering
. This paper shows that differences between the predictions of an international real business cycle model with complete markets and the predictions of a model where agents can trade only risk‐free bonds depend heavily on three parameters: discount factor, and degrees of persistence and spillovers in productivity shocks. This sensitivity explains apparently paradoxical results previously obtained in the literature. Also, since empirical work finds that two of those parameters are not estimated precisely, the outcomes of quantitative studies comparing complete‐markets and bond economies using only the point estimates of those parameters inherit the substantial uncertainty in the parameter estimates.