An open economy new Keynesian macroeconomic model: The case of Turkey
AbstractKeynesian Macroeconomic Model emerged at the end of the 1990s. The main characteristics of this consensus are formed by the synthesis of the New Classical, Real Business Cycle and New Keynesian approaches. Although The New Keynesian Macroeconomic Model is based on a general equilibrium model, it can typically be reduced to a three-equation system, consisting of an aggregate supply equation (Phillips curve), an aggregate demand equation (IS equation) and a monetary policy rule. The basic model assumes a closed economy. However, for a small open economy, such as Turkey, whose growth is largely affected by international capital flows, the ability of the standard New Neo-Classical Synthesis model to fully take into account economic dynamics is limited. In this paper, we attempt to extend the New Neo-Classical Synthesis model to a small open economy case by adding equations that would capture the exchange rate movements and the current account dynamics. Results indicate that the open economy New Neo-Classical Synthesis model for Turkey can provide a framework to capture the dynamics of the Turkish economy for the post financial liberalization era and explain the behavior of the Central Bank of the Republic of Turkey.
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Bibliographic InfoArticle provided by Bilgesel Yayincilik in its journal İktisat İşletme ve Finans.
Volume (Year): 26 (2011)
Issue (Month): 305 ()
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Web page: http://iif.com.tr
Open economy; New neo-classical synthesis; Monetary policy;
Find related papers by JEL classification:
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
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