We estimate a small-scale, structural general equilibrium model of a small open economy using Bayesian methods. Our main focus is the conduct of monetary policy in Australia, Canada, New Zealand and the U.K., as measured by nominal interest rate rules. We consider generic Taylor-type rules,...

This paper develops a small-scale two country model following the New Open Economy Macroecoenomics paradigm. Under autarky the model specializes to the familiar three equation New Keynesian dynamic stochastic general equilibrium (DSGE) model. We discuss two challenges to successful estimation of...

We provide computationally simple methods of analyzing the effects of fundamental and sunspot shocks in linear rational expectations models when the equilibrium is indeterminate Under indeterminacy sunspots can affect model dynamics through endogenous forecast errors that do not completely...

This paper considers a prototypical monetary business cycle model for the U.S. economy, in which the equilibrium is undetermined if monetary policy is ‘inactive? In previous multivariate studies it has been common practice to restrict parameter estimates to values for which the equilibrium is...