A microfounded sectoral model for open economies

Joseph Plasmans (), Jorge Fornero and Tomasz Michalak

Working Papers from University of Antwerp, Faculty of Business and Economics

Abstract: In this paper we derive a microfounded macro New Keynesian model for open economies, be them large or small. We consider habit formation in consumption, sectoral linkages for tradable and non-tradable goods, capital stock investments with variable capital utilization, domestic and foreign governments, imperfect (exchange rate) pass-through in import prices and incomplete international financial markets. Sticky nominal prices and wages are modeled in Calvo and Taylor staggered ways. The model economy is composed of a continuum of infinitely-lived consumers and producers of final and intermediate goods. We provide a very general loglinearization method, from which we can easily obtain various special cases, as trend inflation or steady-state log-linearizations. Numerical simulations of the two-country sectoral model are provided for a relatively large number of structural shocks as domestic and foreign productivity shocks in final tradables and non-tradables, money demand shocks and a shock in the exchange rate. Such a model is well suited for monetary policy analysis at the international level and risk analysis.

Keywords: New Keynesian open economy model; Tradable and non-tradable sectors; Final and intermediate goods; Log-linearization (search for similar items in EconPapers)
JEL-codes: D21 E31 F41 P24 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2006-06
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: A Microfounded Sectoral Model for Open Economies (2007)
Working Paper: A Microfounded Sectoral Model for Open Economies (2007)
Working Paper: A Microfounded Sectoral Model for Open Economies (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ant:wpaper:2007013

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