In this paper we construct a dynamic stochastic general equilibrium model for a small open economy allowing for perfect capital mobility. The model incorporates price rigidities in monopolistically competitive goods and labor markets and real rigidities in the form of capital adjustment costs....

The liquidity effect, defined as a decrease in nominal interest rates in response to a monetary expansion, is a major stylized fact of the business cycle. This paper seeks to understand under what conditions such an effect can be explained in a general equilibrium model with sticky prices and...

We present maximum likelihood estimates of a small scale dynamic general equilibrium model for the Eurozone. We pay special attention to the role of money, both through its direct effect upon private agents’ decisions and as a component of the monetary policy rule. Our results can be...

In a monetary union, inflation rate differentials may be substantial over the business cycle. This paper parameterizes a two-country monetary union in which different economic structures in the two countries generate temporary inflation differentials. Cross-country differences are introduced in...

As the Spanish economy gets more integrated in international markets, competitiveness becomes a key determinant of the monetary transmission. In this paper we trace out the dynamic response of prices, output and the exchange rate following a monetary policy shock. We estimate a structural VAR...

The fiscal theory of the price level has challenged the conventional view that monetary factors drive prices and exchange rates and has also provided a rationale for fiscal restrictions in a monetary union. This paper reviews the main results and compelling criticisms of this theory, analyzing...

In this paper we present some descriptive evidence and simulation exercises with both an estimated backward looking model and a calibrated general equilibrium forward looking model that allow some light to be shed on the determinants and macroeconomic implications of persistent inflation...

The purpose of the present paper is twofold. First, we characterize de Fed's systematic response to technology shocks and its implications for US output, hours and inflation. Second we evaluate the extent to which that responses can be accounted for by a simple monetary policy rule in the...

The main contribution of this paper is to jointly estimate the effects of financial development and inflation on growth. We aim to exploit both the cross-section and the time-series dimension of the data on inflation, growth and some banking and stock market indicators over the period 1961-1993...

A major criticism of standard specifications of price adjustment in models for monetary policy analysis is that they violate the natural rate hypothesis by allowing output to differ from potential in steady state. In this paper we estimate a dynamic optimizing business cycle model whose...