Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25336
Authors: 
Ried, Stefan
Year of Publication: 
2009
Series/Report no.: 
SFB 649 discussion paper 2009,020
Abstract: 
In this paper, the following question is posed: Can the New Keynesian Open Economy Model by Galí and Monacelli 2005b) explain "Six Major Puzzles in International Macroeconomics", as documented in Obstfeld and Rogoff (2000b)? The model features a small open economy with complete markets, Calvo sticky prices and monopolistic competition. As extensions, I explore the effects of an estimated Taylor rule and additional trade costs. After translating the six puzzles into moment conditions for the model, I estimate the five most effective parameters using simulated method of moments (SMM) to fit the moment conditions implied by the data. Given the simplicity of the model, its fit is surprisingly good: among other things, the home bias puzzles can easily be replicated, the exchange rate volatility is formidably increased and the exchange rate correlation pattern is relatively close to realistic values. Trade costs are one important ingredient for this finding.
Subjects: 
International Macroeconomics
New Keynesian open economy model
trade costs
simulated method of moments (SMM)
JEL: 
F41
F42
E52
Document Type: 
Working Paper

Files in This Item:
File
Size
479.29 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.