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New Directions for Stochastic Open Economy Models

Maurice Obstfeld and Kenneth Rogoff.
Authors registered in the RePEc Author Service: Maurice Obstfeld and Kenneth S Rogoff ()

No C99-107, Center for International and Development Economics Research (CIDER) Working Papers from University of California at Berkeley

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.

New Economics Papers: this item is included in nep-dge and nep-mon
Date: 1999-09-01
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Related works:
Journal Article: New directions for stochastic open economy models (2000) Downloads
Working Paper: New Directions for Stochastic Open Economy Models (2000) Downloads
Working Paper: New Directions for Stochastic Open Economy Models (1999) Downloads
Working Paper: New Directions for Stochastic Open Economy Models (1999) Downloads
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