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Anatomizing incomplete-markets small open economies: policy trade-offs and equilibrium determinacy

Alonso-Carrera, Jaime; Kam, Timothy


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]

CollectionsANU Research Publications
Date published: 2015-05-05
Type: Journal article
Source: Macroeconomic Dynamics
DOI: 10.1017/S1365100514000728


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Alonso-Carrera and Kam Anatomizing Incomplete Markets 2015.pdfAuthor/s accepted manuscript (AAM/post-print)385.44 kBAdobe PDFThumbnail
CUP_Incomplete Markets 2015.pdfPublished version274.82 kBAdobe PDFThumbnail
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