Two-Country New Keynesian DSGE Model: A Small Open Economy as a Limit Case
We build a two-country version of the model in Gali & Monacelli(2005), which extends for a small open economy the new KeynesainDSGE model used as tool for monetary policy analysis in closedeconomies. A distinctive feature of the model is that the terms oftrade enters directly into the new Keynesian Phillips curve as a newpushing-cost variable feeding the inflation. Furthermore, home bias inhouseholds? preferences allows for real exchange rate fluctuation, givingrise to alternative channels of monetary transmission. Unlike mostpart of the literature, the small domestic open economy is derived asa limit case of the two-coutry model, rather than assuming exogenousprocesses for the foreign variables. This procedure preserves the roleplayed by foreign nominal frictions in the way as international monetarypolicy shocks are conveyed into the small domestic economy.
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| Length: | 48 pages |
| Date of creation: | Feb 2006 |
| Date of revision: | |
| Handle: | RePEc:ipe:ipetds:1157 |
| Contact details of provider: | Postal: SBS - Quadra 01 - Bloco J - Ed. BNDES, Brasília, DF - 70076-90 Phone: +55(061)315-5000 Fax: +55(61)321-1597 Web page: http://www.ipea.gov.br Email: More information through EDIRC
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Richard Clarida & Jordi Gali & Mark Gertler, 2002.
"A Simple Framework for International Monetary Policy Analysis,"
NBER Working Papers
8870, National Bureau of Economic Research, Inc.
- Clarida, Richard & Gali, Jordi & Gertler, Mark, 2002. "A simple framework for international monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 879-904, July.
- Clarida, Richard & Galí, Jordi & Gertler, Mark, 2002. "A Simple Framework for International Monetary Policy Analysis," CEPR Discussion Papers 3355, C.E.P.R. Discussion Papers.
- Monacelli, Tommaso, 2003.
"Monetary policy in a low pass-through environment,"
Working Paper Series
0227, European Central Bank.
- Tommaso Monacelli, 2003. "Monetary Policy in a Low Pass-Through Environment," Working Papers 228, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
- Claudio Soto, 2003. "Non-Traded Goods and Monetary Policy Trade-Offs in a Small Open Economy," Working Papers Central Bank of Chile 214, Central Bank of Chile.
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