This paper investigates an open-economy extension of real business cycle theory. The equilibrium stochastic process of an artificial economy is numerically computed to calculate measures of volatility, comovement, and persistence of macroeconomic aggregates. These population moments are compared with actual sample moments from Canadian data. The results show that the open-economy model requires smaller and less persistent technological disturbances than closed-economy models. The model closely matches the behavior of most variables, except private investment. An interpretation is provided for the volatile behavior of investment in the artificial economy. The paper extends the basic real business cycle model to a small open-economy environment. The resulting model is numerically solved and calibrated to evaluate its ability to reproduce the stylized facts of Canadian business cycles. The study of the open-economy case is an addition to existing work on real business cycle theory, as models analyze economies where domestic capital is the only vehicle for saving. In an open-economy framework, agents can also accumulate savings in foreign financial assets. The role of international asset trading in intertemporal consumption allocation is emphasized. Empirical evidence suggests that foreign asset accumulation is important for understanding savings dynamics. Trade balance and current account fluctuations are large, negatively correlated with domestic output, and display positive persistence. In Canada, the volatility of net foreign interest payments is 15.25%, while domestic private investment variability is 9.82%. Thus, integrating the foreign sector is an important way to evaluate real business cycle theory. The paper is motivated by the desire to empirically implement a general model of dynamic open-economy macroeconomics. Although international finance issues have been studied, empirical testing is rare. Some observed features of small open economies do not fit well with simple dynamic-optimizing frameworks. By constructing a model with an infinite life horizon, the paper provides a tool for empirical analysis of savings and investment in small open economies. The paper studies an abstract economy with an international, perfectly competitive capital market. The dynamic behavior of the balance of trade and current account is the outcome of optimal intertemporal choices regarding foreign financial assets. The interaction between domestic capital and international assets as alternative savings vehicles is highlighted. The model features an endogenous rate of time preference, used to determine a well-behaved stationary equilibrium for international asset holdings. The stationary cardinal utility function (SCU) is adopted as the time-recursive expression of preferences. SCU assumes that the instantaneous rate of impatience is an increasing function of past consumption levels. Restrictions are imposed on this utility function to allow dynamic programming techniques and ensure a unique stationary distribution of state variables. The equilibrium stochastic process of the model economy is numerically computed using a procedure suggested by Bertsekas. This methodology was used by Sargent and introduced to real business cycle literature by Greenwood, Hercowitz, and Huffman. The procedure is based on value function iteration on a discretized state space. Using optimal decision rules, the exact joint limiting distribution of state variables is computed. TheThis paper investigates an open-economy extension of real business cycle theory. The equilibrium stochastic process of an artificial economy is numerically computed to calculate measures of volatility, comovement, and persistence of macroeconomic aggregates. These population moments are compared with actual sample moments from Canadian data. The results show that the open-economy model requires smaller and less persistent technological disturbances than closed-economy models. The model closely matches the behavior of most variables, except private investment. An interpretation is provided for the volatile behavior of investment in the artificial economy. The paper extends the basic real business cycle model to a small open-economy environment. The resulting model is numerically solved and calibrated to evaluate its ability to reproduce the stylized facts of Canadian business cycles. The study of the open-economy case is an addition to existing work on real business cycle theory, as models analyze economies where domestic capital is the only vehicle for saving. In an open-economy framework, agents can also accumulate savings in foreign financial assets. The role of international asset trading in intertemporal consumption allocation is emphasized. Empirical evidence suggests that foreign asset accumulation is important for understanding savings dynamics. Trade balance and current account fluctuations are large, negatively correlated with domestic output, and display positive persistence. In Canada, the volatility of net foreign interest payments is 15.25%, while domestic private investment variability is 9.82%. Thus, integrating the foreign sector is an important way to evaluate real business cycle theory. The paper is motivated by the desire to empirically implement a general model of dynamic open-economy macroeconomics. Although international finance issues have been studied, empirical testing is rare. Some observed features of small open economies do not fit well with simple dynamic-optimizing frameworks. By constructing a model with an infinite life horizon, the paper provides a tool for empirical analysis of savings and investment in small open economies. The paper studies an abstract economy with an international, perfectly competitive capital market. The dynamic behavior of the balance of trade and current account is the outcome of optimal intertemporal choices regarding foreign financial assets. The interaction between domestic capital and international assets as alternative savings vehicles is highlighted. The model features an endogenous rate of time preference, used to determine a well-behaved stationary equilibrium for international asset holdings. The stationary cardinal utility function (SCU) is adopted as the time-recursive expression of preferences. SCU assumes that the instantaneous rate of impatience is an increasing function of past consumption levels. Restrictions are imposed on this utility function to allow dynamic programming techniques and ensure a unique stationary distribution of state variables. The equilibrium stochastic process of the model economy is numerically computed using a procedure suggested by Bertsekas. This methodology was used by Sargent and introduced to real business cycle literature by Greenwood, Hercowitz, and Huffman. The procedure is based on value function iteration on a discretized state space. Using optimal decision rules, the exact joint limiting distribution of state variables is computed. The