Reviving the Salter-Swan Small Open Economy Model

Stephanie Schmitt-Grohe and Martín Uribe

No 27447, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper provides microfoundations to the Salter-Swan policy framework, a graphical apparatus designed to ascertain the exchange-rate and fiscal stance of a policymaker with internal and external economic targets. The environment is an infinite-horizon small open economy producing tradable and nontradable goods that takes world prices and world interest rates as given and is populated by optimizing households and firms. The economy is subject to terms-of-trade and interest-rate shocks. The internal target of the government is the unemployment rate and the external target is the current account. Downward nominal wage rigidity and financial frictions serve as the rationale for meaningful policy intervention.

JEL-codes: B27 F41 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-opm
Note: EFG IFM ME
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Published as Reviving the Salter-Swan Small Open Economy Model , Stephanie Schmitt-Grohé, Martín Uribe. in NBER International Seminar on Macroeconomics 2020 , Tesar. 2021
Published as Stephanie Schmitt-Grohé & Martín Uribe, 2021. "Reviving the Salter-Swan small open economy model," Journal of International Economics, vol 130.

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