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We develop a stochastic, general equilibrium, two-country model of trade and macroeconomic dynamics. Productivity differs across individual, monopolistically competitive firms in each country. Firms face a sunk entry cost in the domestic market and both fixed and per-unit export costs. Only relatively more productive firms export. Exogenous shocks to(More)
In this paper, we describe a new multi-country open economy SDGE model named " SIGMA " that we have developed as a quantitative tool for policy analysis. We compare SIGMA's implications to those of an estimated large-scale econometric policy model (the FRB/Global model) for an array of shocks that are often examined in open-economy policy simulations. We(More)
This paper addresses the consumption-real exchange rate anomaly. International real business cycle models based on complete financial markets predict a unitary correlation between the real exchange rate and the ratio of home to foreign consumption when subjected to supply side shocks. In the data, this correlation is usually small and often negative. This(More)
This paper studies the role of endogenous producer entry and product creation for monetary policy analysis and business cycle dynamics in a general equilibrium model with imperfect price adjustment. Optimal monetary policy stabilizes producer prices, but lets the consumer price index vary to accommodate changes in the number of available products. The free(More)
In the now conventional view of the inflation process, the New Keynesian Phillips Curve (NKPC) captures most of the persistence in inflation. The sources of persistence are twofold. First, the " driving process " for inflation—the output gap or, more commonly, real marginal cost—is itself quite persistent, and a casual inspection of the NKPC reveals that(More)
This paper characterizes welfare in a small open economy and derives the corresponding optimal monetary policy rule. It shows that the utility-based loss function for a small open economy is a quadratic expression in domestic inflation, output gap and real exchange rate. In contrast to previous works, this paper demonstrates that welfare in a small open(More)
Previously circulated under the title " Business Cycles and Firm Dynamics " and …rst presented in the summer of 2004. For helpful comments, we thank Robert Shimer, two anonymous referees, and participants in many conferences and seminars. We are grateful to and Banque de France for …nancial support through the Chaire Banque de France at the Paris School of(More)
Identifying productivity and real demand shocks in the US with sign restrictions based on standard theory, we provide evidence on real and …nancial channels of their international propagation. Productivity gains in US manufacturing have substantial macroeconomic effects , raising US consumption, investment and the terms of trade, relative to the rest of the(More)
The views expressed here are those of the authors, and do not necessarily re ‡ect the position of the Federal Reserve Bank of New York, the Federal Reserve System, or any other institution with which the authors are a¢ liated. Abstract This paper provides a graphical introduction to the recent literature on macroeconomic stabilization in closed and open(More)