Modern Monetary Theory (MMT) has recently received significant at- tention in academic and policy circles. Critics question the sustainability of MMT-prescribed approaches to fiscal and monetary policy, especially over extended periods of time, in the presence of international financial markets,...

This paper examines how monetary policy affects the asymmetric effects of globalization. We build an open-economy heterogeneous-agent New Keynesian model (HANK) in which households differ in their income, wealth, and real and financial integration with international markets. We use the model to...

The main objective of this paper is to analyse the effects of international trade on employment, focusing particularly on the case where domestic prices are higher than foreign prices, using Pasinetti’s (1981 and 1993) framework as the basic structure of analysis. It is shown that...

Real exchange rate (RER) misalignment is now a standard concept in international macroeconomic theory and policy. However, there is neither a consensus indicator of misalignment, nor an agreed upon methodology for constructing such an indicator. This paper constructs an indicator of RER...

We build a model of financial sector illiquidity in an open economy. Illiquidity defined as a situation in which a country's consolidated financial system has potential short-term obligations in foreign currency that exceed the amount of foreign currency it can have access to on short notice can...

This paper analyzes the role of relative prices in the conduct of wage indexation and monetary policy in a small economy producing traded and non-traded goods under a flexible exchange rate regime. It is shown that the beneficial effect of using relative prices in addition to aggregate prices as...

Global and local methods are widely used in international macroeconomics to analyze incomplete-markets models. We study solutions for an endowment economy, an RBC model and a Sudden Stops model with an occasionally binding credit constraint. First-order, second-order, risky steady state and...

In this paper, we present a quarterly model for the Danish economy while focusing on the main assumptions behind the model and the construction of the databank behind the model. The purpose of the model is to build a platform for analysing the interdependencies between the real and financial...

We present a unified dynamic framework to study the interconnections between international trade and business cycle models. We prove an aggregate equivalence between a competitive, representative firm model that has aggregate production externalities and dynamic trade models that feature...

This paper integrates local temperature treatment effects and a quantitative macroeconomic model to evaluate the impact of climate change on sectoral reallocation and aggregate productivity. First, I use firm-level data from a wide range of countries to estimate the effect of temperature on...

We estimate a novel state-space model to jointly identify international technology trend shocks originating in the US economy as well as shocks that are specific to the UK economy. We further differentiate between technological innovations arising from changes in total factor productivity (TFP)...

This paper analyzes the effects of changes in government expenditures on both a domestically produced and an imported good in an open economy based on intertemporal optimizing behavior. The dynamic adjustment is characterized in detail and the critical role played by the accumulating capital...

This paper analyzes the macroeconomic effects of fiscal and labor market policies in a small open developing country. The basic framework considers an economy with a large informal production sector and a heterogeneous work force. The labor market is segmented as a result of efficiency...

Uncertainty about an economy’s regime can change drastically around a crisis. An imported crisis such as the global financial crisis in the euro area highlights the effect of foreign shocks. Estimating an open-economy nonlinear dynamic stochastic general equilibrium model for the euro area and...

The closed economy macro literature has shown that a liquidity trap can result from the self-fulfilling expectation that future inflation and output will be low (Benhabib et al. (2001)). This paper investigates expectations-driven liquidity traps in a two-country New Keynesian model of a...

We propose a simple methodology to estimate the short-term natural rate of interest (NRI) in small open economies. Following Clarida et al.(2002), the NRI depends on the expected growth of (1) domestic potential output and (2) output abroad. We use observable expectations within an estimated...

This paper contrasts the effects of a permanent and temporary investment tax credit in an open economy. In both cases an ITC will initially stimulate investment, while reducing employment and output, and generating a current account deficit. If the ITC is permanent, the accumulation of capital...

This paper examines whether the sector bias of skill-biased technical change (sbtc) explains changing skill premia within countries in recent decades. First, using a two-factor, two-sector, two-country model we demonstrate that in many cases it is the sector bias of sbtc that determines sbtc's...

We assess the transmission of a monetary policy shock in a two-country New Keynesian model featuring a global private stablecoin and a central bank digital currency (CBDC). In the model, cash and digital currencies are imperfect substitutes that differ as to the liquidity services they provide....

South Africa’s post-apartheid economic transformation project has not generally delivered a “better life for all” as promised at the dawn of democracy. While most middle and upper-middle income countries have continued to see industry leading overall growth, with high investment levels,...

Using a panel of eighteen OECD countries over the period 1970-2015, our evidence reveals that labor growth originates from non-traded industries while real GDP growth is uniformly distributed across sectors following a government spending shock. A rationale behind these two findings lies in...

We study the impact that a permanent slowdown in trend growth has on fiscal policy with an estimated small open economy model. The magnitude and timing of the change in trend growth are estimated alongside the structural and fiscal policy rule parameters. Around 2003:Q3, trend growth in per...

This paper provides a theoretical model of an open economy credit channel including currency mismatch and financial fragility where exporting firms have access to international credit but non-exporting firms do not. It considers the post-crisis outcome which is predicted to be dramatically...

Expanding on an approach suggested by Ashenfelter (1984), we extend the Phillips curve to an open economy and exploit panel data to estimate the textbook 'expectations augmented' Phillips curve with a market-based and observable measure of inflation expectations. We develop this measure using...

This paper constructs an open-economy factor-augmented VAR model to assess the dynamic effects of global shocks on emerging economies and quantify their importance in explaining macroeconomic fluctuations in emerging markets. An unexpected favorable shock to global demand and supply has a strong...

Supermultiplier growth models show that higher autonomous spending leads to stronger economic growth, implying that greater government spending can boost economic activity (Freitas and Serrano, 2015). However, several authors highlighted the limits of this strategy, arguing that increased...

Exchange rate movements affect the economy through changes in net exports, i.e. the trade channel, and through valuation changes in assets and liabilities denominated in foreign currencies, i.e. the financial channel. In this paper, I investigate the macroeconomic and financial effects of U.S....

This paper analyzes the macroeconomic impact of corporate taxation. The analysis is conducted in a quantitative two-country model. In the first step, the paper describes the long-run effects of corporate taxation. A reduction in the corporate-income tax rate increases GDP, wages, consumption,...

During the Covid-19 pandemic, Europe has benefitted strongly from being an open economy that can access goods and services from other parts of the world. Paradoxically, some politicians in Europe think that dependence on foreign supplies reduced the resilience of our economy - and argue that...

During the Covid-19 pandemic, Europe has benefitted strongly from being an open economy that can access goods and services from other parts of the world. Paradoxically, some politicians in Europe think that dependence on foreign supplies reduced the resilience of our economy - and argue that...

This paper aims to analyse the dynamics of foreign exchange markets in a country facing political uncertainty that prompt capital outflow from the country. The economic environment under investigation is characterized by dual foreign exchange markets: a formal or official market for foreign...

We examine forward guidance (with known and uncertain duration) in a New Keynesian model for an advanced small open economy, showing that the response of the economy to this policy depends, both quantitatively and qualitatively, on some structural features through calibrations for Sweden and...