This paper discusses a dynamic model that is consistent with the main
empirical regularities of economic fluctuations in open economies. Whi
le other models in this class have relied on non-separable preferences
or finite horizons to generate a realistic consumption volatility, we
show that there is a simple class of time separable preferences that
is consistent with the cyclical volatilities of the components of the
national income accounts identity as well as with the countercyclical
character of the balance of trade.