Is it important to incorporate in a small open economy model an interest rate that is debt elastic à la SGU (2003) in a perfect foresight model ? I reckon that this is done to induce stationnarity in the model, but perfect foresight does not need stationary to perform simulation.
Note that my model is not a RBC model, but rather looks at the very long run (2100) with a dynamic general equilibrium model. I was also wondering if I could just have a trade balance in my model and no foreign bonds to close this trade balance.
It depends on what exactly you are trying to do. Even in stochastic models, you would not necessarily have to induce stationarity. The issue in your case may be that you need to be able to compute the terminal steady state, which is easier with stationary assets.
Thank you. I first did not have foreign bonds or bonds in my model, because this is not what I’m interested in in my model. I do have a trade balance because I’m interesting in flows of different types of goods.
I was thinking in taking out this foreign bonds and keeping that trade balance. Is it not too restrictive ?