Robustness, information-processing constraints, and the current account in small open economies

• 成果类型: Article
• 署名作者: Luo, Yulei; Nie, Jun; Young, Eric R.
• 署名单位: University of Hong Kong; Federal Reserve System - USA; Federal Reserve Bank - Kansas City; University of Virginia
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2012.02.004
• 发表日期: 2012
• 页码: 104-120
• 关键词: robustness; rational inattention; consumption smoothing; current account; Detection error probabilities

摘要

In this paper we examine the effects of two types of induced uncertainty, model uncertainty due to robustness (RB) and state uncertainty due to finite information-processing capacity (called rational inattention or RI), on consumption and the current account. We show that the combination of RB and RI improves the model's predictions for (i) the contemporaneous correlation between the current account and income and (ii) the volatility and persistence of the current account in small open emerging and developed economies. In addition, we show that the two informational frictions improve the model's ability to match the impulse response of consumption to income and the relative volatility of consumption to income growth. (C) 2012 Elsevier B.V. All rights reserved.