scholarly journals Multiple Equilibria in Open Economy Models with Collateral Constraints: Overborrowing Revisited

2016 ◽  
Author(s):  
Stephanie Schmitt-Grohé ◽  
Martín Uribe
Keyword(s):  
Open Economy ◽  
Multiple Equilibria ◽  
Collateral Constraints ◽  
Open Economy Models

Multiple Equilibria in Open Economies with Collateral Constraints

2020 ◽  
Author(s):  
Stephanie Schmitt-Grohé ◽  
Martín Uribe
Keyword(s):  
Open Economy ◽  
Financial Crises ◽  
Multiple Equilibria ◽  
Infinite Horizon ◽  
Open Economies ◽  
Precautionary Savings ◽  
Related Literature ◽  
Collateral Constraints ◽  
Present Context ◽  
Open Economy Models

Abstract This article establishes the existence of multiple equilibria in infinite-horizon open economy models in which the value of tradable and non-tradable endowments serves as collateral. In this environment, the economy displays self-fulfilling financial crises in which pessimistic views about the value of collateral induce agents to deleverage. Under plausible calibrations, there exist equilibria with underborrowing. This result stands in contrast to the overborrowing result stressed in the related literature. Underborrowing emerges in the present context because in economies that are prone to self-fulfilling financial crises, individual agents engage in excessive precautionary savings as a way to self-insure.

scholarly journals Stationarity-Inducing Techniques in Small Open Economy Models with Collateral Constraints

2020 ◽  
Author(s):  
Vasiliki Dimakopoulou
Keyword(s):  
Interest Rate ◽  
Open Economy ◽  
Small Open Economy ◽  
Discount Factor ◽  
Credit Constraint ◽  
Economy Model ◽  
Collateral Constraints ◽  
Equilibrium Dynamics ◽  
Interest Rate Model ◽  
Open Economy Models

AbstractI show that the alternative stationarity-inducing techniques that have been used to “close” the standard small open economy model (like an endogenous discount factor and a debt-elastic interest rate premium) have different implications for the equilibrium dynamics once I add a commonly-used collateral-type financial constraint. Given this non-equivalence, my results further show that a small open economy model with a credit constraint that embodies an endogenous discount factor is superior to the debt-elastic interest rate model when one tries to match this kind of models to the data.

scholarly journals Approximately Right?: Global v. Local Methods for Open-Economy Models with Incomplete Markets

2020 ◽  
Vol 2020 (006) ◽  
Author(s):  
Oliver de Groot ◽  
◽  
C. Bora Durdu ◽  
Enrique G. Mendoza ◽  
◽  
...  
Keyword(s):  
Incomplete Markets ◽  
Open Economy ◽  
Local Methods ◽  
Open Economy Models

scholarly journals Closing Large Open Economy Models

2006 ◽  
Vol 2006 (867r) ◽  
pp. 1-83
Author(s):  
Martin Bodenstein ◽  
Keyword(s):  
Open Economy ◽  
Open Economy Models
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