IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Small Open Economy Model With Domestic Resource Shocks: Monetary Union Vs. Floating Exchange Rate

Listed author(s):
  • Tor Einarsson
Registered author(s):

    This paper developes a small open economy model in which domestic resource shocks play a vital role in driving the dynamics of the major macroeconomic aggregates. House- holds rent capital and labour to rms and have access to an international bond market. The model is calibrated to recent Icelandic data and simulated under two alternative exchange rate regimes: oating rates, and monetary union membership. It is found that by entering a larger currency area, the volatility of the real exchange rate, real wages and consumption are sharply reduced, but output and employment are seen to be more volatile. Smoother consumption renders monetary union marginally Pareto superior to oating. Under mon- etary union and low ination, slight nominal wage reductions may be required at times to absorb adverse resource shocks. [JEL Codes: E32, E42, F31, F41. Key words: domestic resource shocks, exchange rate regime, stabilization, welfare costs.]

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by Department of Economics, Central bank of Iceland in its series Economics with number wp18_tor.

    in new window

    Date of creation: Nov 2002
    Handle: RePEc:ice:wpaper:wp18_tor
    Contact details of provider: Postal:
    Kalkofnsvegi 1, 150 Reykjavik

    Phone: 569-9600
    Fax: 569-9605
    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:ice:wpaper:wp18_tor. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Central Bank of Iceland)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.