In this paper we develop a two-country dynamic general equilibrium model by means of which we seek to explain the long-run path of a transition economy. The model's novel feature is the inclusion of quality investment in the standard framework of applied general equilibrium two-country models....

Policymakers do not always follow a simple rule for setting policy interest rates for various reasons. Thus their behavior can be represented by a standard Taylor type policy rule amended with an additional variable representing an ad hoc factor. Consequently, ignoring the presence of the ad hoc...