Braun and Joy meet Bak and Chen self-organized criticality in a small open economy

Abstract

We model an open economy based on Bak et al. (1992), allowing to analyze emergent behav- ior from the interaction of the non-lineal cost function, local interactions and the open economy restrictions we incorporate. The availability of reserves limits the demand for import goods becoming a restriction to production. A oating real exchange rate allows for the correction of the internal demand to avoid large uctuations in the production and product of the modeled economy. The model is capable of generating sudden stop crisis endogenously, without the need of an external shock. We impose the Argentinian input-output matrix structure to stablish the local interactions and check that our model behaves consistent to the Leontiefs one under speci c conditions that may be altered to understand situations that can lead to the conclusions previously mentioned.