Monetary Policy for an Open Economy: An Alternative Framework with Optimizing Agents and Sticky Prices

Bennett McCallum () and Edward Nelson ()

No 8175, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The new open-economy macroeconomics' seeks to provide an improved basis for monetary and exchange-rate policy through the construction of open-economy models that feature rational expectations, optimizing agents, and slowly adjusting prices of goods. This paper promotes an alternative approach for constructing such models by treating imports not as finished consumer goods but rather as raw-material inputs to the home economy's productive process. This treatment leads to a clean and simple theoretical structure that has some empirical attractions as well. A particular small-economy model is calibrated and its properties exhibited, primarily by means of impulse response functions. The preferred variant is shown to feature a pattern of correlations between exchange-rate changes and inflation that is more realistic than provided by a more standard specification. Important recent events are interpreted in light of the alternative models.

JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2001-03
Note: EFG ME
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/w8175.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: Monetary Policy for an Open Economy: An Alternative Framework with Optimising Agents and Sticky Prices (2001)
Working Paper: Monetary Policy for an Open Economy: An Alternative Framework with Optimizing Agents and Sticky Prices (2001)
Journal Article: Monetary Policy for an Open Economy: An Alternative Framework with Optimizing Agents and Sticky Prices (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:8175

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w8175
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 ().