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Regional Economic and Monetary Integration: A Modelling and Policy Analysis


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    This paper is concerned with developing a simple two-country model with the objective of identifying the macroeconomic impact arising for a small open economy from shocks emanating from a large country. The latter can also be interpreted as representing a bloc of countries that exert an important influence upon the small country. The approach adopted is to conduct some simple simulations focusing upon external shocks emanating from the large country and its economic impact upon the small country, identifying in the process under what circumstances a policy response by the small country would be optimal in the sense of reducing the volatility of key macroeconomic variables such as the domestic price level, the exchange rate, the domestic interest rate and domestic output. In doing so, this analysis can enable identification of the desirability, or otherwise, of a coordination of macroeconomic policy between the large and small country, and under what circumstances it would be desirable to conduct an autonomous macroeconomic policy. The analysis is conducted by means of generating a calibrated solution and simulation of the model.

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    Bibliographic Info

    Paper provided by School of Economics, University of Wollongong, NSW, Australia in its series Economics Working Papers with number wp04-15.

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    Length: 21 pages
    Date of creation: 2004
    Date of revision:
    Handle: RePEc:uow:depec1:wp04-15

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    Postal: School of Economics, University of Wollongong, Northfields Avenue, Wollongong NSW 2522 Australia
    Phone: +612 4221-3659
    Fax: +612 4221-3725
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    Keywords: Regional and monetary integration; simulation;

    This paper has been announced in the following NEP Reports:


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