Working Paper: CEPR ID: DP1131
Authors: Maurice Obstfeld; Kenneth Rogoff
Abstract: We develop an analytically tractable two-country model that marries a full account of global macroeconomic dynamics to a supply framework based on monopolistic competition and sticky nominal prices. The model offers simple and intuitive predictions about exchange rates and current accounts that sometimes differ sharply from those of either modern flexible-price intertemporal models, or traditional sticky-price Keynesian models. Our analysis leads to a novel perspective on the international welfare spillovers due to monetary and fiscal policies.
Keywords: exchange rate dynamics; sticky-price; macroeconomic models; current account
JEL Codes: F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| money supply shocks (E51) | output (C67) |
| money supply shocks (E51) | exchange rates (F31) |
| money supply shocks (E51) | world real interest rates (E43) |
| government spending shocks (E62) | world real interest rates (E43) |
| government spending shocks (E62) | output (C67) |
| government spending shocks (E62) | exchange rates (F31) |