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Financial Development and the Instability of Open Economies

Aghion, Philippe; Banerjee, Abhijit V.; Bacchetta, Philippe - 2021

This paper introduces a framework for analyzing the role of financial factors as a source of instability in small open economies. Our basic model is a dynamic open economy model with a tradeable good produced with capital and a country-specific factor. We also assume that firms face credit...

Persistent link: https://www.econbiz.de/10013221113

Monetary Policy in the Open Economy Revisited : Price Setting and Exchange Rate Flexibility

Devereux, Michael B.; Engel, Charles - 2021

This paper develops a welfare-based model of monetary policy in an open economy. We focus on the extent to which monetary policy should be employed in maintaining the exchange rate. The traditional approach maintains that exchange rate flexibility is desirable in the presence of real...

Persistent link: https://www.econbiz.de/10013223870

Open-Economy Inflation Targeting

Svensson, Lars E. O. - 2021

The paper extends previous analysis of closed-economy inflation targeting to a small open economy with forward … for monetary policy. The paper compares targeting of CPI and domestic inflation, strict and flexible inflation targeting …, and inflation-targeting reaction functions and the Taylor rule. The optimal monetary policy response to several different …

Persistent link: https://www.econbiz.de/10013227038

International Trade and Open Access Renewable Resources : The Small Open Economy Case

Brander, James A.; Taylor, Michael Scott - 2021

This paper develops a two-sector general equilibrium model of an economy with an open access renewable resource. We characterize the autarkic steady state, showing that autarky prices (and 'comparative advantage') are determined by the ratio of intrinsic resource growth to labor. Under free...

Persistent link: https://www.econbiz.de/10013238708

Growth and Welfare in a Small Open Economy

Grossman, Gene M. - 2010

We construct a model of growth based on endogenous technological change in a small, open economy. Entrepreneurs develop new intermediate products whenever the present value of potential profits exceeds the cost of R&D. Diversity of intermediates contributes to total factor productivity in the...

Persistent link: https://www.econbiz.de/10013139328

The Simple Analytics of the Melitz Model in a Small Open Economy

Demidova, Svetlana A. - 2011

In this paper we present a version of the Melitz (2003) model for the case of a small economy and summarize its key relationships with the aid of a simple figure. We then use this figure to provide an intuitive analysis of the implications of asymmetric changes in trade barriers and show that a...

Persistent link: https://www.econbiz.de/10013119344

Adjustment to Small, Large, and Sunspot Shocks in Open Economies with Stock Collateral Constraints

Schmitt-Grohé, Stephanie - 2016

This paper characterizes analytically the adjustment of an open economy with a stock collateral constraint to fundamental and nonfundamental shocks. In the model, external borrowing is limited by the value of physical capital. Three results are established: (1) Adjustment to external shocks is...

Persistent link: https://www.econbiz.de/10012976973

Financial Crises, Dollarization, and Lending of Last Resort in Open Economies

Bocola, Luigi - 2017

Foreign currency borrowing is perceived as a source of financial instability in emerging markets. We propose a theory …

Persistent link: https://www.econbiz.de/10012944158

Trade, Diffusion and the Gains from Openness

Rodríguez-Clare, Andrés - 2012

Building on Eaton and Kortum's (2002) model of Ricardian trade, Alvarez and Lucas (2005) calculate that a small country representing 1% of the world's GDP experiences a gain of 41% as it goes from autarky to frictionless trade with the rest of the world. But the gains from openness, which...

Persistent link: https://www.econbiz.de/10012755278

Investment Tax Credit in an Open Economy

Sen, Partha; Turnovsky, Stephen J. - 2022

This paper contrasts the effects of a permanent and temporary investment tax credit in an open economy. In both cases an ITC will initially stimulate investment, while reducing employment and output, and generating a current account deficit. If the ITC is permanent, the accumulation of capital...

Persistent link: https://www.econbiz.de/10013309580