This paper uses bayesian techniques to estimate a small-scale two country model based on the Euro Area and the U.S. data. The model, based on the New Open Economy Macroeconomics framework, is microfounded and characterized by nominal price rigidities, a nontradable sector, home bias in...

Recent evidence by Bils and Klenow (2004) and Klenow and Kryvstov (2003) shows that the average price duration for US CPI-basket goods is in the order of one to two quarters, challenging the monetary business cycle research to try and explain how short price durations can nevertheless generate a...