"Simulation, estimation and welfare implications of monetary policies in a 3-country NOEM model." NBB Working Paper No. 94, October 2006

Plasmans, Joseph, and Michalak, Tomasz, and Fornero, Jorge. (2006) "Simulation, estimation and welfare implications of monetary policies in a 3-country NOEM model." NBB Working Paper No. 94, October 2006.

Abstract

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 discussed.