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 evaluates monetary policy rules in a business cycle model with staggered prices and wage setting a la Calvo and asymmetric information in the credit market. Rules are compared in a utility based welfare metric, the effects of the model’s nonlinear dynamics are captured by a...

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 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...

The aim of the present paper is to analyze the pass-through from exchange rate to inflation in Brazil from 1980 to 2002. Initially, we developed a model of a profit-maximizing firm based on the pricing-to-market approach presented by FEENSTRA and KENDAL (1997). In order to adapt the model to the...

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...

The research addresses three methodological questions that are central to effective exchange rate and macroeconomic management: what are the determinants and how to model the real exchange rate (RER), how to estimate its equilibrium level, and how to quantify the likely impact of misalignment on...

Can active Taylor rules (i.e. monetary rules where the nominal interest rate responds more than proportionally to inflation) deliver global equilibrium uniqueness in small open economies? By studying the local and global dynamics of a standard small open economy we point out the misleading...