Optimal Price and Inventory Adjustment in an Open-Economy Model of the Business Cycle (original) (raw)

Money and the Open Economy Business Cycle: A Flexible Price Model

1986

This paper develops an open-economy model of the business cycle. The nominal prices in the model are flexible and monetary nonneutrality is developed using information confusion about the sources of disturbances to demand coupled with differential persistence of demand shocks. Firms use inventories to smooth their production, and consumers follow a stochastic permanent income expenditure function. The major implication of the model is that unperceived monetary disturbances improve the terms of trade and increase real output in contrast to sticky price models in which the terms of trade deteriorates. This implication of the model is examined empirically.

What Drives Business Cycles in a Small Open Economy with a Fixed Exchange Rate

2005

We decompose the Danish business cycle into ten structural shocks using an openeconomy dsge model with infrequent determination of prices and wages which we estimate with Bayesian techniques. Consistent with the Danish monetary policy regime, we formulate an imperfect peg on the foreign exchange rate and analyse the resulting monetary transmission mechanism.

Modern Business Cycle Theory

Canadian Journal of Economics, 1990

This paper extends Sidrauski's approach to two currencies in a small open economy. Following Sidrauski's solution procedure, we derive a macroeconomic model that is usually found in some ad hoc models of perfect foresight. It turns out that an implicit assumption of fixed future expectations on the future price inflation is imposed on the household's behavior. We also show that unexpected and permanent increases in government expenditure cause the exchange rate to rise. Whether there is initial overshooting in the exchange rate depends on the relative shifts of m = 0 and F = 0 schedules. Furthermore, it is shown that when the government announces its future increases in the government expenditure, the domestic currency depreciates immediately and the foreign exchange accumulates thereafter. [F 411

Money and Business Cycle in a Small Open Economy

2000

This paper examines the consequences of introducing a cash-in-advance constraint into a small open economy business cycle model for the Spanish case. A business cycle model is built extending Correia, small open economy framework and Cooley and Hansen (1995) monetary economy. Money is introduced through a cash-in-advance constraint. The stochastic simulation of the model and its comparison to Spanish data show that the model is able to mimic i) the Dolado et al. puzzle, that is, the high volatility of private consumption for this economy; ii) the Dunlop-Tarshis observation, i.e., the negative correlation between real wages and hours worked; and iii) some cyclical features of the nominal dimension.

Monetary Aspects of Business Cycles in an Open Developing Economy

This paper investigated the influence of selected monetary actions on the real economy of Nigeria. A Monetarist framework and a causality approach were employed in the analysis. The analysis covered nominal and real specifications and, level and order of integration. Whereas, the outcome of the experiments involving nominal specifications was mixed, real expressions firmly upheld monetary actions as the key driver of economic activities. The influences of both the price level and exogenous variables were palpable.

ABSTRACT Title of dissertation: ESSAYS IN MONETARY ECONOMICS AND BUSINESS CYCLES

2016

This dissertation investigates non-linear macroeconomic dynamics within the New Keynesian model during periods with zero short-term nominal interest rates. I implement modern quantitative tools to solve and analyze Dynamic Stochastic General Equilibrium (DSGE) models where the feedback rule that defines monetary policy is subject to the Zero Lower Bound (ZLB) constraint. The revived attention about the importance of the ZLB constraint followed the extreme events that took place in the United States after the financial crisis of 2008. The first chapter studies aggregate dynamics near the ZLB of nominal interest rates in a medium-scale New Keynesian model with capital. I use Sequential Monte Carlo methods to uncover the shocks that pushed the U.S. economy to the ZLB during the Great Recession and investigate the interaction between shocks and fric-tions in generating the contraction of output, consumption and investment during 2008:Q3-2013:Q4. I find that a combination of shocks to th...