# uncomment the next lines, the first time you run
# import Pkg; Pkg.add(["Dynare", "DataFrames"])
Opening Economy Extension
Business Cycles and Fluctuations - AE2E6
Using Dynare:
- get familiar with the structure of a modfile
- interpret results
- compare moments with the data
- edit a model
- fix steady-state
- extend a model (in particular recheck/rederive first order conditions)
Uncomment the following lines to install needed packages (if not already present).
Small Open Economy
Start from the same rbc model as in last tutorial session. Assume the representative agent can save \(b^{\star}_t\) as foreign assets, remunerated at a constant interest rate \(r^{\star}-1\).
Write the new budget constraint for the representative household.
Write the new optimality condition.
What is the long run constraint on interest rate \(r^{\star}\)?
Update the modfile (set \(\overline{b^{\star}}=0\))
Print theoretical moments. Comment.
Simulate the model over 100 periods. Comment.
Assume the foreign interest rate depends on the amount of foreign assets
\[r^{\star}_t=\frac{1}{\beta} + exp(-\kappa b^{\star}_t) - 1\]
with \(\kappa=0.001\). How do you interpret the equation for \(r^{\star}_t\). How should you modify the model equations?
Update the modfile and comment on the generated moments. Do they depend on the choice of \(\kappa\)?