We extend the Carlin and Soskice (2005) 3-equation New Keynesian model by introducing a commercial bank that intermediates between the central bank and borrowers in the non-bank private sector. Commercial bank interest rate setting is explicitly modelled, and the implications for stabilization...

This paper develops a model of inflation in an open economy. The model permits analysis of the susceptibility of open economies to permanent inflationary consequences arising from transitory foreign exchange shocks. Sources of structural vulnerability to such events are identified, and means of...