This paper studies a dynamic-optimizing model of a semi-small open economy with sticky nominal prices and wages. The model exhibits exchange rate overshooting in response to money supply shocks. The predicted variability of nominal and real exchange rates is roughly consistent with that of G7...

Mainstream economics tends to perceive economic systems in a mechanistic way, which makes it impossible to grasp the notion of the irreversibility of real economic processes and thus encourages referring to the achievements of thermodynamics. Although economic equivalents of thermodynamic...