We build a two-country version of the model in Gali & Monacelli (2005), which extends for a small open economy the new Keynesain DSGE model used as tool for monetary policy analysis in closed economies. A distinctive feature of the model is that the terms of trade enters directly into the new...

New-Keynesian macroeconomic models typically assume that any long-run trade-off between inflation and unemployment is ruled out. While this appears to be a reasonable characterization of the US economy, it is less clear that the natural rate hypothesis necessarily holds in a European country...

The New Keynesian sticky-price model has become increasingly popular for monetary-policy analysis. However, there have been conflicting results on the empirical performance of the model. In this paper, I attempt to reconcile these conflicting claims by examining various specifications of the...