UNSPECIFIED (2003) A small open economy with staggered wage setting and intertemporal optimization: The basic analytics. In: Conference on Growth and Business Cycles in Theory and Practice, JUN 20-21, 2002, UNIV MANCHESTER, MANCHESTER, ENGLAND.

Full text not available from this repository.

Abstract

We develop a model of a small open economy with optimizing, infinitely lived agents. They have monopoly power over the price of their labour, and wage setting is staggered. We consider the effects of an unanticipated increase in the money supply. In all cases, the exchange rate depreciates immediately to its long-run value with no overshooting. With unitary elasticity of substitution in preferences between home and foreign goods, output rises instantaneously but gradually returns to its initial value in the long run. Trade remains balanced at all times. With an elasticity of substitution above unity, there is a trade surplus in the short run and a deficit in the long run, as permanently higher net foreign assets are accumulated. Convergence to the steady state is faster, and thus output persistence is smaller. With unitary elasticity the dynamics are the same as in an equivalent closed economy, so, to the extent that an elasticity greater than one is plausible for an open economy, we conclude that openness reduces output persistence.

Item Type:	Conference Item (UNSPECIFIED)
Subjects:	H Social Sciences > HC Economic History and Conditions
Journal or Publication Title:	MANCHESTER SCHOOL
Publisher:	BLACKWELL PUBL LTD
ISSN:	1463-6786
Date:	2003
Volume:	71
Number:	4 Sp. Iss. SI
Number of Pages:	21
Page Range:	pp. 396-416
Publication Status:	Published
Title of Event:	Conference on Growth and Business Cycles in Theory and Practice
Location of Event:	UNIV MANCHESTER, MANCHESTER, ENGLAND
Date(s) of Event:	JUN 20-21, 2002
URI:	http://wrap.warwick.ac.uk/id/eprint/9527

Data sourced from Thomson Reuters' Web of Knowledge

Request changes to a record

Actions (login required)

View Item