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A monetary, open-economy model with capital mobility

  • Don E. Schlagenhauf
  • Jeffry M. Wrase

This paper examines a two-country, monetary general-equilibrium model that includes a financial sector, capital mobility, and shocks to technologies and money-growth rates. Capital mobility allows agents in both countries to participate in rewards from relatively favorable shocks realized in either country. Currency exchange facilitates currency-intermediated international trade of consumption and capital goods. Qualitative and quantitative implications of the model for evolutions of variables are investigated. The quantitative analysis is performed by numerically solving and simulating the model. We focus on international monetary shock transmissions, and effects of monetary innovations on interest rates and nominal and real exchange rates.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Discussion Paper / Institute for Empirical Macroeconomics with number 67.

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Date of creation: 1992
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Handle: RePEc:fip:fedmem:67
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  1. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987. "International real business cycles," Working Papers 426, Federal Reserve Bank of Minneapolis.
  2. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity effects and the monetary transmission mechanism," Staff Report 150, Federal Reserve Bank of Minneapolis.
  3. Dellas, Harris, 1986. "A real model of the world business cycle," Journal of International Money and Finance, Elsevier, vol. 5(3), pages 381-394, September.
  4. Alan C. Stockman, 1978. "A Theory of Exchange Rate Determination," UCLA Economics Working Papers 122, UCLA Department of Economics.
  5. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February.
  6. Rotemberg, Julio J., 1985. "Money and the terms of trade," Journal of International Economics, Elsevier, vol. 19(1-2), pages 141-160, August.
  7. Cantor, Richard & Mark, Nelson C, 1988. "The International Transmission of Real Business Cycles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 493-507, August.
  8. Schlagenhauf, Don E. & Wrase, Jeffrey M., 1995. "Liquidity and real activity in a simple open economy model," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 431-461, June.
  9. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol. 81(4), pages 797-818, September.
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