Spurious welfare reversals in international business cycle models.
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...
| Publicado en: | Journal of International Economics Vol. 60; no. 2; pp. 471 - 501 |
|---|---|
| Autores principales: | , |
| Formato: | Artículo |
| Publicado: |
Elsevier Science
August 2003
|
| Materias: | |
| Acceso en línea: | Ver este registro en EBSCOhost |
| Sumario: | 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. © 2002 Elsevier Science B.V. All rights reserved. |
|---|