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The Liquidity Effect in a Small Open Economy Model

Javier Andrés (), David Lopez-Salido () and Javier Valles

Working Papers from Banco de España, Working Papers Homepage

Abstract: In this paper we construct a dynamic stochastic general equilibrium model for a small open economy allowing for perfect capital mobility. The model incorporates price rigidities in monopolistically competitive goods and labor markets and real rigidities in the form of capital adjustment costs. The model matches some nominal and real business cycle features observed in European economies and produces a significant output response to monetary policy shocks.

Keywords: GENERAL EQUILIBRIUM; STOCHASTIC MODELS; MACROECONOMICS (search for similar items in EconPapers)
JEL-codes: F41 D50 C60 (search for similar items in EconPapers)
Pages: 45 pages
Date: 1999
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