Monetary Policy in an Estimated Open-Economy Model with Imperfect Pass-Through
- 1 June 2004
- preprint
- Published by Elsevier in SSRN Electronic Journal
Abstract
We develop a structural model of a small open economy with gradual exchange rate pass-through and endogenous inertia in inflation and output. We then estimate the model by matching the implied impulse responses with those obtained from a VAR model estimated on Swedish data. Although our model is highly stylized it captures very well the responses of output, domestic and imported inflation, the interest rate, and the real exchange rate. However, in order to account for the observed persistence in the real exchange rate and the large deviations from UIP, we need a large and volatile premium on foreign exchange.Keywords
All Related Versions
This publication has 36 references indexed in Scilit:
- How Useful are Simple Rules for Monetary Policy? The Swedish ExperienceSSRN Electronic Journal, 2006
- Nominal rigidity, desired markup variations, and real exchange rate persistenceJournal of International Economics, 2005
- Rule-of-thumb behaviour and monetary policyEuropean Economic Review, 2003
- The Output Composition Puzzle: A Difference in the Monetary Transmission Mechanism in the Euro Area and U.S.Published by National Bureau of Economic Research ,2003
- Putting the ‘New Open Economy Macroeconomics’ to a testJournal of International Economics, 2003
- Equilibrium Exchange Rates and Supply‐Side PerformanceThe Economic Journal, 2003
- Price Stability with Imperfect Financial IntegrationSSRN Electronic Journal, 2001
- Asset Prices under Habit Formation and Catching up with the JonesesPublished by National Bureau of Economic Research ,1990
- A linear algebraic procedure for solving linear perfect foresight modelsEconomics Letters, 1985
- Staggered prices in a utility-maximizing frameworkJournal of Monetary Economics, 1983