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...
| Published in: | Journal of International Economics Vol. 60; no. 2; pp. 471 - 501 |
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| Main Authors: | , |
| Format: | Article |
| Published: |
Elsevier Science
August 2003
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| Subjects: | |
| Online Access: | View this record in EBSCOhost |
| fields | @attributes: recordID: 1 pdfLink: plink: https://search.ebscohost.com/login.aspx?direct=true&db=ssf&AN=513145370&site=ehost-live header: @attributes: shortDbName: ssf uiTerm: 513145370 longDbName: Social Sciences Full Text (H.W. Wilson) uiTag: AN controlInfo: bkinfo: jinfo: jid: 00221996 IEM jtl: Journal of International Economics issn: 00221996 maglogo: N pubinfo: dt: August 2003 vid: 60 iid: 2 pid: 467 pub: Elsevier Science artinfo: ui: 513145370 10.1016/S0022-1996(02)00047-8 ppf: 471 ppct: 30 formats: tig: atl: Spurious welfare reversals in international business cycle models. aug: au: Kim, Jinill Kim, Sunghyun Henry su: Stochastic processes Risk Mathematical models of business cycles Welfare economics sug: subj: Stochastic processes Risk Mathematical models of business cycles Welfare economics ab: 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. pubtype: Academic Journal doctype: Article src: R language: English refInfo: copyright: @attributes: flag: N holdings: @attributes: islocal: N |
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