The paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages. Explicit solution of the wage-setting problem under uncertainty allows one to analyze the effects of the monetary regime on welfare, expected output, and the expected terms of trade....

In this paper I focus on two specific hazard areas in the transition from Stage Two to Stage Three of European economic and monetary union (EMU), as well as on some key problems of Stage Three that EMU's monetary and fiscal structures appear ill-prepared to handle. The transitional hazards are...

This paper uses a novel teat to see whether the Herse (1985) and Woo (1985) models are consistent with the variability of the deutschemark - dollar exchange rate 1974-1984. The answer, perhaps surprisingly, is yes. Both models, however, explain the month to month variability as resulting in a...

This paper compares nominal income and monetary targets in a standard aggregate demand - aggregate supply framework. If the desirability of policies is measured by their effect on the unconditional variance of output, nominal income targeting is preferable if and only if the aggregate elasticity...

This paper is a highly selective review of our knowledge about the scope for sterilized intervention in foreign exchange markets under alternative exchange-rate regimes. Section I demonstrates the potential importance of simultaneous-equations bias in single-equation econometric studies of the...

This paper studies the effects of monetary policy in a small, open economy with a floating exchange rate, sticky wages, and rational expectations in both the asset and labor markets. The model developed emphasizes the link between exchange-rate depreciation and nominal wage inflation, embodying...

This paper presents a long-run model of the open economy in a world of fixed exchange rates and imperfect substitutability between bonds denominated in different currencies. The model explicitly accounts for the wealth flow accompanying current-account imbalance and for the flow of interest...