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A structuralist model of the small open economy in the short, medium and long run

  • Hian Teck Hoon

    ()

    (Singapore Management University)

  • Edmund S. Phelps

    ()

    (Columbia University - Department of Economics)

In open-economy macroeconomics there is a monetary model in the Keynesian tradition that is deemed serviceable for analyzing the short run and there is a nonmonetary neoclassical theory thought capable of handling the long run. But do the Keynesian and neoclassical models meet the challenges thrown out by the main events of the past few decades¡ªthe '80s shock to Europe taking the form of an external jump in real interest rates; the sort of shock experienced in the U.S. and parts of northern Europe in the second half of the '90s: the emerging prospect of new industries in the future creating increased needs for capital; and what may have been a major shock of the '60s: the large Kennedy tax cut, mostly the reduction in income taxes, enacted in the U.S. in 1964? We suggest that the effects of these shocks on the open economy are not well portrayed by either the standard Keynesian model or by standard neoclassical theory. We then provide a careful development of a nonmonetary model of the equilibrium path of the real exchange rate, and natural output, employment and interest based on trading frictions in the goods market, and compare its implications not only over the medium run but for the short run and the long run as well.

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File URL: http://www.econ.columbia.edu/RePEc/pdf/DP0102-25.pdf
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Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0102-25.

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Length: 48 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:clu:wpaper:0102-25
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  1. Engel, C., 1996. "Accounting for U.S. Real Exchange Rate Changes," Working Papers 96-02, University of Washington, Department of Economics.
  2. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
  3. Robert A. Mundell, 1962. "The Appropriate Use of Monetary and Fiscal Policy for Internal and External Stability," IMF Staff Papers, Palgrave Macmillan, vol. 9(1), pages 70-79, March.
  4. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
  5. João Ricardo Faria & Miguel León-Ledesma, 2000. "The Intertemporal Substitution Model of Labor Supply in an Open Economy," Studies in Economics 0009, School of Economics, University of Kent.
  6. Olivier Blanchard & Francesco Giavazzi & Filipa Sa, 2005. "The U.S. Current Account and the Dollar," NBER Working Papers 11137, National Bureau of Economic Research, Inc.
  7. Obstfeld, Maurice & Rogoff, Kenneth S., 1995. "Exchange Rate Dynamics Redux," Scholarly Articles 12491026, Harvard University Department of Economics.
  8. Hian Teck Hoon & Edmund S. Phelps, 2004. "A Structuralist Model of the Small Open Economy in the Short, Medium and Long Run," DEGIT Conference Papers c009_005, DEGIT, Dynamics, Economic Growth, and International Trade.
  9. Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
  10. Lane, Philip R., 1999. "The New Open Economy Macroeconomics: a Survey," CEPR Discussion Papers 2115, C.E.P.R. Discussion Papers.
  11. Maurice Obstfeld & Kenneth Rogoff & Ben Bernanke & Kenneth Rogoff, . "The Six Major Puzzles in International Macroeconomics: Is there a Common Cause?," Working Paper 32326, Harvard University OpenScholar.
  12. repec:cup:cbooks:9780521445337 is not listed on IDEAS
  13. Edmund S. Phelps & Hian Teck Hoon & Gylfi Zoega, 2004. "The Structuralist Perspective on Real Exchange Rate, Share Price Level and Employment Path: What Room is Left for Money?," Working Papers 05-2004, Singapore Management University, School of Economics.
  14. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
  15. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, June.
  16. Phelps, Edmund S, 1988. "A Working Model of Slump and Recovery from Disturbances to Capital-Goods Demand in an Open Nonmonetary Economy," American Economic Review, American Economic Association, vol. 78(2), pages 346-50, May.
  17. Rodriguez, Carlos Alfredo, 1979. "Short- and Long-Run Effects of Monetary and Fiscal Policies under Flexible Exchange Rates and Perfect Capital Mobility," American Economic Review, American Economic Association, vol. 69(1), pages 176-82, March.
  18. Hoon, H.T. & Phelps, E., 1990. "Macroeconomics Shocks In Dynamized Models Of The Natural Rate Of Unemployment," Discussion Papers 1990_36, Columbia University, Department of Economics.
  19. Edmund Phelps & Gylfi Zoega, 2001. "Structural booms," Economic Policy, CEPR;CES;MSH, vol. 16(32), pages 83-126, 04.
  20. Hoon, Hian Teck & Phelps, Edmund S, 1992. "Macroeconomic Shocks in a Dynamized Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 82(4), pages 889-900, September.
  21. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  22. Gottfries, Nils, 1991. "Customer Markets, Credit Market Imperfections and Real Price Rigidity," Economica, London School of Economics and Political Science, vol. 58(231), pages 317-23, August.
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