This study incorporates international firm mobility into a new open economy macroeconomic model to analyze the question of how allowing for the international relocation of firms affects the impact of government spending shock on consumption and exchange rate. The study shows that the government...

In this paper, we argue that the effect of monetary and fiscal policies on the exchange rate depends on the fiscal regime. A contractionary monetary (expansionary fiscal) shock can lead to a depreciation, rather than an appreciation, of the domestic currency if debt is not backed by future...

We develop an extension to the Obstfeld and Rogoff (1995, 1996) two-sector model with imperfect competition and nominal wage rigidities. Contrary to the Obstfeld and Rogoff (1995, 1996) analysis, we make an explicit account for the investment side of the two-sector economy. We analyze the...

While exchange rate dynamics is an important topic in open economy macroeconomics, the standard tool commonly used to introduce exchange rate dynamics - the Dornbusch (1976) seminal paper along with phase diagram - is not well-suited for undergraduate students as most of them do not have yet a...