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A simple aggregate demand analysis with dynamic optimization in a small open economy

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  • Ken-ichi Hashimoto
  • Yoshiyasu Ono

Abstract

We develop an aggregate demand analysis of a small open economy based on all agents’ dynamic optimization. Murota and Ono (2015) present a simple Keynesian cross analysis with dynamic optimization. This paper extends it to a small-country setting with two factors and two commodities, of which the structure is as simple as the conventional Keynesian cross analysis. We apply the model to examine the effects of changes in various parameters, such as the terms of trade, foreign asset holdings and government purchases, on aggregate demand. They are quite different from those under full employment and those of the Mundell-Fleming model.

Suggested Citation

  • Ken-ichi Hashimoto & Yoshiyasu Ono, 2019. "A simple aggregate demand analysis with dynamic optimization in a small open economy," ISER Discussion Paper 1061, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:1061
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    Cited by:

    1. Ikefuji, Masako & Ono, Yoshiyasu, 2021. "Environmental policies in a stagnant economy," Economic Modelling, Elsevier, vol. 102(C).
    2. Jean-Baptiste Michau, 2021. "Open Economy Secular Stagnation and Financial Integration," Working Papers 2021-19, Center for Research in Economics and Statistics.
    3. Sasaki, Hiroaki, 2020. "Product and Process Innovation, Keynesian Unemployment, and Economic Growth," MPRA Paper 101031, University Library of Munich, Germany.
    4. Murota, Ryu-ichiro, 2022. "The effect of a decline in the world real interest rate on a small open economy experiencing persistent stagnation," Economics Letters, Elsevier, vol. 216(C).

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    More about this item

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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