This paper uses a small open economy model to address two outstanding issues in monetary policy: (1) what restrictions on the policy rule ensure that the central bank does not introduce real indeterminacy into the economy, and (2) what is the optimal long run rate of inflation. The small open economy model provides unique insights on both fronts. In the case of determinacy issues, the model’s s...

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...

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 ...