Anatomizing incomplete-markets small open economies: policy trade-offs and equilibrium determinacy
We propose a simple incomplete-markets small-open-economy model that is amenable to analytical dissection of its policy-relevant mechanisms. In contrast to its complete-markets limit, the equilibrium real exchange rate is irreducible from the incomplete-markets equilibrium. Market incompleteness exacerbates the domestic-inflation and output-gap monetary-policy trade-off in two ways: its steepness and its resulting endogenous cost-push to the trade-off. The latter depends on an equilibrium...[Show more]
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|Alonso-Carrera and Kam Anatomizing Incomplete Markets 2015.pdf||Author/s accepted manuscript (AAM/post-print)||385.44 kB||Adobe PDF|
|CUP_Incomplete Markets 2015.pdf||Published version||274.82 kB||Adobe PDF|
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