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

Bennett McCallum and Edward Nelson

Oxford Review of Economic Policy, 2000, vol. 16, issue 4, 74-91

Abstract: The "new open-economy macroeconomics" seeks to provide an improved bias 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. Copyright 2000 by Oxford University Press.

Date: 2000
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (201)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Software Item: Matlab code for the McCallum/Nelson model (2001)
Working Paper: Monetary Policy for an Open Economy: An Alternative Framework with Optimizing Agents and Sticky Prices (2001)
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)
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: https://EconPapers.repec.org/RePEc:oup:oxford:v:16:y:2000:i:4:p:74-91

Access Statistics for this article

Oxford Review of Economic Policy is currently edited by Christopher Adam

More articles in Oxford Review of Economic Policy from Oxford University Press and Oxford Review of Economic Policy Limited
Bibliographic data for series maintained by Oxford University Press ().