Spurious welfare reversals in international business cycle models

• 成果类型: Article
• 署名作者: Kim, J; Kim, SH
• 署名单位: University of Virginia; Tufts University
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/S0022-1996(02)00047-8
• 发表日期: 2003
• 页码: 471-500
• 关键词: linearization; bias correction; stochastic steady state; risk sharing; welfare

摘要

Several papers have documented spurious welfare reversals: incomplete-markets economy produces a higher level of welfare than the complete-markets economy. This paper first demonstrates how conventional linearization can generate approximation errors that can result in welfare reversals. Using a two-country production economy, we argue that spurious welfare reversals are not only possible but also plausible under reasonable values for model parameters. This paper then proposes an approximation method that modifies the conventional linearization by a bias correction. This method can be easily implemented and approximates welfare as accurately as a second-order perturbation method. (C) 2002 Elsevier Science B.V. All rights reserved.