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...

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 --...

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...

A common feature of numerous studies on early warning systems (EWS) of currency crisis is the use of an index of exchange market pressure, defined as a weighted average of the rate of depreciation, the monthly percentage changes in international reserves, and sometimes the inclusion of the...

A government policy regarding the reduction of state shares in state-owned enterprises (SOE) triggered a crash in the Chinese stock market. The sus- tained depression even after policy adjustments constitutes a puzzle— the so called “state-share paradox.”The empirical evidence shows...

A government policy regarding the reduction of state shares in state-owned enterprises (SOE) triggered a crash in the Chinese stock market. The sus- tained depression even after policy adjustments constitutes a puzzle— the so called “state-share paradox.”The empirical evidence shows...

This article presents a non-Markovian regime switching model in which the regime states depend on the sign of an autoregressive latent variable. The magnitude of the latent variable indexes the `strength' of the state or how deeply the system is embedded in the current regime. The autoregressive...

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...