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Monetary Policy in an Estimated Open-Economy Model with Imperfect Pass-Through

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Author Info
Lindé, Jesper
Nessen, Marianne
Söderström, Ulf

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Abstract

We develop a structural model of a small open economy with gradual exchange rate pass-through and endogenous inertia in inflation and output. We then estimate the model by matching the implied impulse responses with those obtained from a VAR model estimated on Swedish data. Although our model is highly stylized it captures very well the responses of output, domestic and imported inflation, the interest rate, and the real exchange rate. In order to account for the observed persistence in the real exchange rate and the large deviations from UIP, however, we need a large and volatile premium on foreign exchange.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4531.

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Date of creation: Aug 2004
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Handle: RePEc:cpr:ceprdp:4531

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Keywords: calibration estimation new open-economy macroeconomics structural open-economy model

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
F31 - International Economics - - International Finance - - - Foreign Exchange
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Plasmans J. & Fornero J. & Michalak T., 2006. "A microfounded sectoral model for open economies," Working Papers 2007013, University of Antwerp, Faculty of Applied Economics. [Downloadable!]
    Other versions:
  2. Argov, Eyal & Elkayam, David, 2007. "An Estimated New Keynesian Model for Israel," MPRA Paper 9412, University Library of Munich, Germany. [Downloadable!]
  3. Bjørnland, Hilde C., 2005. "Monetary Policy and the Illusionary Exchange Rate Puzzle," Memorandum 26/2005, Oslo University, Department of Economics. [Downloadable!]
    Other versions:
  4. Vasco Cúrdia & Daria Finocchiaro, 2007. "Monetary regime change and business cycles," Staff Reports 294, Federal Reserve Bank of New York. [Downloadable!]
  5. Argov, Eyal & Binyamini, Alon & Elkayam, David & Rozenshtrom, Irit, 2007. "A Small Macroeconomic Model to Support Inflation Targeting in Israel," MPRA Paper 4784, University Library of Munich, Germany. [Downloadable!]
  6. Cúrdia, Vasco & Finocchiaro, Daria, 2005. "An Estimated DSGE Model for Sweden with a Monetary Regime Change," Seminar Papers 740, Stockholm University, Institute for International Economic Studies. [Downloadable!]
  7. Efrem Castelnuovo, 2006. "Regime Shifts and the Stability of Backward Looking Phillips Curves in Open Economies," "Marco Fanno" Working Papers 0015, Dipartimento di Scienze Economiche "Marco Fanno". [Downloadable!]
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