REAL BUSINESS CYCLES IN AN OPEN-ECONOMY - AN APPLICATION TO GERMANY

This paper discusses a stochastic, dynamic-optimizing model of an open economy. It is closely related to small open economy models, but diff ers by introducing an upward-sloping supply curve of foreign bonds. Th e model is calibrated to match the long-run features of Germany. The s imulations show that the model is consistent with the observed regular ities of German business fluctuations.