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subtracting ^y F;t from ^y H;t yields: ^y F;t = 2v(1 v) ^T t + v ^C t + (1 v) ^C t ^y H;t ^y F;t = 4v(1 v) ^T h + (2v 1) ^Ct ^C t i (C1) Financial autarky implies: P H;t y H;t = P t C t ! y H;t = P t P H;t C t ) ^y H;t = (1 v) ^T t + ^C t (C2) PF;ty F;t = Pt Ct ! y F;t = P t Ct ) ^y F;t = (v 1) ^T t + ^C t (C3) Substituting (C2) and (C3) into (C1) yields P F;t [^y H;t ^y F;t ] [1 2v(1 )] = ^T t To derive expression (40) for complete …nancial markets, substitute the complete …nancial markets risk sharing condition cRS t = (v v ) ^T t = ( ^C t ^C t ) into expression (C1) to yield To derive expression (41), substitute the incomplete …nancial markets risk sharing condition ^T t = ^y t ^y t 4v(1 v) + (2v 1)2 E tRSt+1 c RSt c = E t (C t+1 C t ) E t Ct+1 Ct (v v ) E t ^Tt+1 ^Tt = E t C t+1 Ct+1 (C t Ct ) into expression (C1) to yield ^y t ^y t = 4v(1 v) + (2v 1)2 (2v 1) ^T 2 t E t ^Tt+1 + (2v 1)E t ^Ct+1 ^C t+1 36
D Data sources 1. US quarterly data on the consumption-based real exchange rate, the terms of trade and relative consumption are taken from table 2A in Corsetti et al (2006). 2. GDP refered to in table 2 real GDP per capita from BEA’s NIPA table 7.1. ‘Selected Per Capita Product and Income Series in Current and Chained Dollars’, seasonally adjusted. The series was logged and H-P …ltered. 3. Consumption referred to in table 2 is total consumption expenditures de‡ated by the relevant GDP de‡ator, both from BEA’s NIPA tables 2.3.5 and 1.1.9. 4. Investment referred to in tables 2 is real …xed investment per capita from BEA’s NIPA table 5.3.3. Real Private Fixed Investment by Type. Population is from NIPA table 7.1. 5. The estimated Solow residual is taken from Backus et al (1995) table 11.3. 37
Page 1 and 2: CENTRE FOR DYNAMIC MACROECONOMIC AN
Page 3 and 4: sume …nancial autarky. They show
Page 5 and 6: goods producing sector. The interme
Page 7 and 8: the same, such that C t = ~ C t (9)
Page 9 and 10: maximization problem of the represe
Page 11 and 12: shocks in C: shocks to the home int
Page 13 and 14: our shock processes, and matrix th
Page 15 and 16: increase is associated with a large
Page 17 and 18: since a depreciation reduces the va
Page 19 and 20: 5.1 The role of consumption home-bi
Page 21 and 22: This shows that the log-deviation o
Page 23 and 24: : [^y t ^y t ] = (1 x y )(1 2v(1
Page 25 and 26: model the phenomenon of negative in
Page 27 and 28: model displays high persistence, th
Page 29 and 30: more robust to changes in key param
Page 31 and 32: Lucrezia Reichlin and Kenneth West
Page 33 and 34: Optimal capital accumulation equati
Page 35: x H y H = ' x y H (B2) x H y H = '
Page 39 and 40: 4 3.5 3 2.5 σ T 2 1.5 1 ρ T corr(
Page 41 and 42: 1.6 1.4 1.2 σ T 1 corr(RS, c-c*) 0
Page 43 and 44: 4 3.5 3 2.5 σ T 2 1.5 corr(RS,c-c*
Page 45 and 46: 4 3.5 3 2.5 2 σ T 1.5 1 corr(RS,c-
Page 47 and 48: 4 3.5 3 2.5 σ T 2 1.5 1 corr(rs, c
Page 49 and 50: www.st-and.ac.uk/cdma ABOUT THE CDM
Page 51: CDMA07/18 CDMA07/19 CDMA07/20 The M

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