Simulation, estimation and welfare implications of monetary policies in a 3-country NOEM model


In this paper we derive a microfounded macro New Keynesian model for open economies, be them large or small. We consider habit formation in consumption, sectoral linkages, domestic and foreign governments, tradable and non-tradable final and intermediate goods and imperfect pass-through in these sectors. Sticky nominal prices and wages are modeled in a Calvo way. The model economy is composed of a continuum of infinitely-lived consumers and producers for three regions (countries). Numerical simulations and econometric estimations are presented with a focus on a small open economy member of the EMU. Welfare implications of the involved price and wage rigidities are discussedNew Keynesian open economy model, tradable and non-tradable sectors, final and intermediate goods, monetary policy rules, numerical simulations, Bayesian estimation, welfare implications

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