This paper provides microfoundations to the Salter-Swan policy framework, a graphical apparatus designed ascertain exchange-rate and fiscal stance of policymaker with internal external economic targets. The environment is an infinite-horizon small open economy producing tradable nontradable goods that takes world prices interest rates as given populated by optimizing households firms. subject t...

Abstract We show that cost asymmetry between the domestic and foreign firms is not necessary for occurrence of insufficient entry in country. This result provides a rationale pro-competitive policies even absence asymmetries among firms. However, if significant demand comes from countries, market structures are determined endogenously domestic-entry an open economy might be insufficient, implyi...

This paper studies wage-setting coordination in a two-sector, open economy dynamic stochastic general equilibrium (DSGE) model. Two large sectoral unions anticipate the effects of their wage demands on aggregate variables. In an economy, there are externalities that can take into account to increase welfare, but strategic interaction between tends erode this gain. When takes place through norm ...