The paper analyzes the transmission mechanisms of fiscal shocks in a two-country general equilibrium model with sticky prices in line with the new open economy macroeconomics (NOEM) approach. Specifically, the model allows for both market segmentation and asymmetric preferences. We introduce...

Nominal exchange rates are remarkably volatile. They ordinarily appear disconnected from the fundamentals of the economies whose currencies they price. These facts make up a classic puzzle about the international economy. If prices do not respond fully to changes in the nominal exchange rate,...

This paper uses a two-country, monetary general equilibrium model with imperfect competition to study the optimal rate of inflation in an open economy. In contrast with the closed economy literature, when policy is set non-cooperatively in the open economy, the optimality of the Friedman rule --...

This paper is a first step toward building a new macroeconomic model that is usable for analyzing the effects of shocks that originate in Japan on Asian economies. The new framework borrows its central ingredients from the literature of the “new open economy macroeconomicsâ€, that is...

One important issue for the new Member States (NMS) of the EU is the choice of the exchange rate regime that will allow them to participate successfully in the EMU process. Two exchange rate arrangements, compatible with the EU Treaty and ERM2 regulations, deserve special attention: flexible...

We present a new class of general equilibrium model to study exchange rate dynamics. Our model synthesizes the new micro and macro approaches by incorporating the micro foundations of asset market trading into a dynamic, two country general equilibrium setting. We use the model to study how...

We develop an equilibrium model in which exchange rates, stock prices and capital flows are jointly determined under incomplete forex risk trading. Incomplete hedging of forex risk, documented for U.S. global mutual funds, has three important implications: 1) exchange rates are almost as...

This study examines the dynamics associated with an economy implementing an Exchange Rate Based Stabilization (ERBS) programs when they are subject to sudden restrictions in international capital flows. In the context of a simple theoretical model, we describe the pressures on a country's...

Large capital inflows and repeated balance of payments crises (BOPC) associated with their sudden reversal have characterized the emerging market economies during the 90's. Sterilized intervention has been the most common response to capital inflows. This paper links the sterilization efforts...

This paper models the dynamics of the adjustment process of Indonesian purchasing power parity (PPP) relative to US, Japan and Singapore by employing a nonlinear framework, which is recently shown to be appropriate in the presence of transaction costs associated with international trade. Using...