Wo r k i n g Pa p e r S e r i e s
N o 1 1 7 2 / A P RI L 2 0 1 0
Size, Openness, and
Macroeconomic
Interdependence
by Alexander Chudik
and Roland Straub
WO R K I N G PA P E R S E R I E S
N O 117 2 / A P R I L 2010
SIZE, OPENNESS,
AND MACROECONOMIC
INTERDEPENDENCE1
by Alexander Chudik2,
and Roland Straub3
NOTE: This Working Paper should not be reported as representing
the views of the European Central Bank (ECB).
The views expressed are those of the authors
and do not necessarily reflect those of the ECB.
In 2010 all ECB
publications
feature a motif
taken from the
€500 banknote.
This paper can be downloaded without charge from http://www.ecb.europa.eu or from the Social Science
Research Network electronic library at http://ssrn.com/abstract_id=1582992.
1 Earlier version of the paper was circulated under the title: “Equlibrium of a Large MulticountryDSGE Model”. We are indebted to
Prof. Hashem Pesaran for his support and many useful discussions. We would like to thank also Prof. Seppo Honkapohja
and Dr. Rupert Gatti for their guidance during the earlier stages of this research; and Kevin Sheedy
and Dennis Novy for helpful discussions. All errors are our responsibility.
2 European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany, and CIMF,
email: alexander.chudik@ecb.europa.eu
3 European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.
e-mail: roland.straub@ecb.europa.eu
© European Central Bank, 2010
Address
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Any reproduction, publication and
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permitted only with the explicit written
authorisation of the ECB or the authors.
Information on all of the papers published
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found on the ECB’s website, http://www.
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html/index.en.html
ISSN 1725-2806 (online)
CONTENTS
Abstract
4
Non-technical summary
5
1 Introduction
6
2 A multicountry general equilibrium model
8
2.1 A canonical representation of the equilibrium 9
2.2 Existence of the equilibrium
11
3 Defining macroeconomic interdependence
3.1 Diversified trade structure
3.2 Locally dominant economies
3.3 Globally dominant economies
13
14
16
17
4 Assessing macroeconomic interdependence
19
5 Concluding remarks
21
Figures
22
Appendices
26
References
46
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Working Paper Series No 1172
April 2010
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April 2010
45
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ECB
Working Paper Series No 1172
April 2010
Wo r k i n g Pa p e r S e r i e s
N o 1 1 1 8 / n ov e m b e r 2 0 0 9
Discretionary
Fiscal Policies
over the Cycle
New Evidence
based on the ESCB
Disaggregated Approach
by Luca Agnello
and Jacopo Cimadomo