A great majority of the empirical work on rational expectations models of behaviour has been within the framework of a closed economic system. This paper attempts to deal with an open economy characterized by interest rate arbitrage and perfect capital mobility, within the context of a macroeconomic model which displays a non-market clearing version of the natural rate hypothesis. It can be viewed as a naive extension of Taylor (1979) or as an application of Muth (1960).
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Paper provided by Queen's University, Department of Economics in its series Working Papers with number
487.
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