New Directions for Stochastic Open Economy Models

Maurice Obstfeld and Kenneth S Rogoff

No 7313, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages. Explicit solution of the wage-setting problem under uncertainty allows one to analyze the effects of the monetary regime on welfare, expected output, and the expected terms of trade. Despite the potential interplay between imperfections due to sticky wages and monopoly, the optimal monetary policy rule has a closed-form solution. To motivate our model, we show that observed correlations between terms of trade and exchange rates are more consistent with our traditional assumptions about nominal rigidities than with a popular alternative based on local-currency pricing.

JEL-codes: F3 F4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mon
Date: 1999-08
Note: IFM ME
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/w7313.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
Working Paper: New Directions for Stochastic Open Economy Models (2000)
Working Paper: New Directions for Stochastic Open Economy Models (1999)
Working Paper: New Directions for Stochastic Open Economy Models (1999)
Journal Article: New directions for stochastic open economy models (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberwo:7313

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w7313
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().