This paper examines the ability of vector autoregressive (VAR) models to properly identify the transmission of monetary policy in a controlled experiment. Simulating data from a small open economy DSGE model estimated for Australia, we find that sign-restricted VAR models do reasonably well at...

We investigate the impact of domestic and foreign credit supply shocks on a number of key macroeconomic variables for three small open economies: Australia, Canada and the UK. We find that negative domestic and foreign credit supply shocks together explain, on average, one-third to one-half of...

The rational expectations equilibrium of a small open economy can be subject to indeterminacy if foreign monetary policy does not satisfy the Taylor principle. We study the implications of foreign induced indeterminacy in the two-country version of the sticky-price small open economy model. Our...