Questions tagged [open-economy-macro]

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The case where the entire amount of investment goods are supplied by the imports

A positive investment multiplier does not exist in an open economy simple Keynesian model when the entire amount of investment goods is supplied from import. Examine the validity of this statement. My ...
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Changes in equilibrium output

When considering the changes in equilibrium output due to an increase in foreign income, in a small open economy with uncovered interest parity and flexible exchange rates ... An increase in foreign ...
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Historical classification of countries data

I am looking for historical classification of countries by year as industrialized, Less Developed, and Emerging Market Countries and/or any other classification. I have looked on the World Bank ...
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Small Open Economy

In a small open economy, the interest rate is exogenous: The world interest rate. The domestic interest rate can fluctuate momentarily, but because of complete freedom of international flow of funds, ...
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IS equation in a DSGE: interpretation

I am solving a DSGE model and I derived the following expression for the IS equation: However, I have some problems interpreting this equation. How would you interpret it? is the domestic output is ...
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Small Open Economy (SOE) Vs. Emerging Market Economy (EME)

In the graduate-level macro, I often see a Small Open Economy (SOE) setting, e.g., in the textbook of Gali. Yet when I read papers, authors sometimes use the term Emerging Market Economy (EME). I ...
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Has the way the balance of payments is recorded changed?

I am trying to understand the balance of payments. My textbooks say, "the internet" also says, all those YT economics videos say (!): BOP = Current account+Capital account+Financial account =...
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Can anyone explain why the Swiss balance of payments is not balanced (real data)?

While doing a little research I went to the Swiss National Bank's website and downloaded their data on the Swiss balance of payments. The data is here: https://data.snb.ch/en/topics/aube#!/cube/...
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When companies export do they receive the foreign currency or their domestic currency? (net capital outflows)

In Mankiw "Economics" (Fourth edition) it states when a company exports (UK BP Oil to Japan): Two things have occured the UK has sold to a foreigner some of its output in the goods market (...
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Financial manipulation and Inflation as tools for sovereign debt default

In the book This Time Is Different, by Reinhart and Rogoff, in chapter 8, the authors state that Higher minimum level of reserves (?) And/or upper bound/ceiling to interest rates ( will help increase ...
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Is there a way to trade currencies several times and end up with more money than one starts with?

Conjecture: The foreign price value of a currency is not absolute. Scenario: If the euro appreciates relative to the British pound and the price of the US dollar stays the same relative to the euro, ...
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Shifts in IS in a fixed exchange rate mechanism

First, we assume we are in a fixed exchange rate mechanism. In this system, I deduce that the expected exchange rate would be fixed, at the market rate. In a floating system, with open capital markets,...
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Why would foreign asset purchases by PBOC temper yuan appreciation?

Suppose the PBOC buys a bunch of dollar-denominated bonds, using its dollar reserves. All else equal, what effect should this have on the yuan-USD exchange rate? And why? It amounts to trading non-...
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What is the no ponzi condition for this representative consumer problem? Tags: Initial condition, no-ponzi game

This question is following Farhi et.al. 2014's consumer budget constraint modified to add a government bond and removing money. A simplified version is given below which is pertinent to the question. $...
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Why is the supply curve in the foreign-currency exchange market vertical?

In the book 'Economics' by Mankiw and Taylor the demand and supply curves on the foreign-currency exchange market are shown as follows: The supply equals the Net Capital Outflow (NCO). I would have ...
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Book about monetary union?

do you know any book/manual dealing specifically with monetary unions ? I know economics of monetary union of De Grauwe, but I'm looking for other references. Thank you
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Dynamics of interest rates, exchange rates and bond prices within the UIP

There are already a few questions about the workings of the UIP and the exchange rate. What I have basically taken from those discussions is that one always has to distinguish between the spot rate ...
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Macroeconomic model of the open economy - NCO and loanable funds

Can anyone explain to me why a capital flight from a country increases the demand for loanable funds in that country. Here's the standard explanation. https://policonomics.com/lp-open-economy-loanable-...
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Connection between saving and investments-Y=C+I+G+NX [duplicate]

I understand Y-G-C = I+NX = Savings . The equation that we see everywhere in economic textbooks. I see the mathematical logic. BUT Given that I = capital investment in GDP accounting surely Savings ...
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Similarities between microeconomic and macroeconomic failure. And, how microeconomic failures affect the economy at the macro level?

I can't make a relation between microeconomic and macroeconomic failures? I know they have differences. However, I want to know the effect of these two economic breakdowns on each other. I am meaning ...
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2 votes
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Difference between IS-LM-UIP and IS-LM-BP models?

My query is regarding the Mundell-Fleming model. I am reading the chapters on open-economy macroeconomics from Blanchard (I am following Blanchard mainly and I have read all the previous chapters). In ...
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When a country purchases foreign assets, does it change the Net Capital Outflow?

When a country purchases foreign assets, does it change the Net Capital Outflow? This was a discussion question in my class, and a lot ended up answering that NCO increases, but I'm not so sure. ...
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Why do some researchers include oil price in a VAR model?

Why do some researchers include international oil prices in a VAR model for small open economies? My intuition is that international oil prices cannot be a endogenous variable in the context of a ...
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2 votes
1 answer
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What are some examples of goods that entrepreneurship-intense?

Entrepreneurship is considered to be one of factors of production (the other factors of production are capital, labor and land). According to Heckscher–Ohlin model, a country that has an abundant ...
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3 votes
1 answer
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Fiscal policy in the Dornbusch model

I'm studying the Dornbusch overshooting model of the exchange rate. Specifically, I'm studying the model presented in a textbook by Copeland (2014). The economy is represented by the following ...
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How to interpret correctly the uncovered interest rate parity condition

So, according to my macroeconomics professor's notes, the UNCOVERED INTEREST RATE PARITY CONDITION is defined this way : Now, i don't quite grasp the concept of the 'expected appreciation rate of ...
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How to define world interest rate using IS-LM-BP diagram?

Can you suggest where is the world interest rate in the economy which has a positive current account and a financial account surplus, fixed exchange rate and relative capital immobility? The graph of ...
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Positive productivity shock with a fall in output

I am modeling a two-country world. Within each country there exists a representative infinitely-lived agent, a representative final good producer, a continuum of domestic monopolistic competitive ...
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3 votes
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Elasticity of substitution in leisure

This might be a very basic question, but I am a beginner in macro models. I would appreciate help with my doubt. In different papers I have read about the elasticity of labor supply or the inverse of ...
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2 votes
4 answers
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Why do we spread knowledge across nations?

We have access to lots of knowledge on paper sharing platforms, open course platforms, open-source platforms and question asking platforms and etc, and Tesla opened all its electric car patents in ...
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2 votes
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Log-linear version of current account equation

I am working on my thesis, doing a two-country model with traded and non-traded goods considering incomplete asset markets and imperfect pass-through. In a sense, I am following Benigno & ...
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1 answer
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Log-linearization of real exchange rate

I have a doubt on how to log linearize an expression for the real exchange rate. I have read in several papers that they express it using substitutions. I haven't been able to find out what ...
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1 answer
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Log-linear version of the uncovered interest rate parity

I am trying to derive the log-linear version of the uncovered interest rate parity under complete asset markets. I know that the UIP condition is given by $$(1+i_t)=(1+i^*_t)\frac{S_{t+1}}{S_t}$$ I ...
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2 votes
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Transversality Condition

I am reading the first section of chapter 10 of the Obstfeld and Rogoff textbook Foundations of International Economics and I have a doubt in how the transversality condition is obtained. Even though ...
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1 vote
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Non-traded goods in Two Country New Keynesian Model

I am working on a two-country New Keynesian model, where I include traded and non-traded goods. The final good is produced using traded and non-traded inputs: $$ Z_t=\bigg[a^\frac{1}{\kappa}Z_{T,t}^{\...
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What does it mean if a country's exchange rate is said to be “overvalued”?

For instance, China's or Switzerland's currencies are often said to be overvalued.
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When to use a lagrange multiplier?

I have a question in regards to the use of Lagrange multipliers in macro models. I have seen that when writing a Lagrange there are two ways to write the Lagrange multiplier: 1) Indexed or 2) ...
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2 votes
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When does the interest rate parity curve shift?

Given the IS LM IRP model, can somebody tell me the difference for when there is a movement along the IRP curve and when there is an actual shift in the IRP curve?
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1 answer
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How does exchange rate change with respect to interests?

If the central bank raises intereat rates, isn't the money supply now less and the exchange rate is greater? I have run into opposite statements and dont know how to approach this problem. Thanks in ...
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1 answer
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Which one of these intepretations of belonging of a factor of production is correct in context of calculating "income of our citizens abroad"?

NFFI can be calculated as income of foreigners here MINUS income of our citizens/corporations abroad. As far as I understand, it's assumed that our citizens earn income by using OUR factors of ...
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4 votes
1 answer
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Bretton Woods vs Gold Standard

I've been reading about the history of the IMF recently, and it strikes me as odd that despite the problems that arose with the gold standard (Germany in the 1920s, Fed cutting money supply during the ...
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2 answers
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Gali (2015) Chapter 8 Symmetric Steady State

In Chapter 8 (small open economy) of Gali's 2015 version of Monetary Policy, Inflation, and the Business Cycle, he often performs log linearisations around a symmetric steady state like below: My ...
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Why a Current Account deficit implies a Financial Account surplus [duplicate]

Every macro textbook out there states that if a country has a Current Account deficit, it must have a surplus in the Financial account, but I have not heard a convincing explanation. Imagine a ...
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3 votes
1 answer
759 views

What is a good proxy for government quality?

Is it ok to use corruption as a proxy for government quality?
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1 answer
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find the equilibrium level of Y [closed]

Assume that the LM curve for a small open economy with a floating exchange rate is given by Y = 200r – 200 + 2(M/P), while the IS curve is Y = 400 + 3G – 2T + 3NX – 200r. The function for NX is NX = ...
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1 vote
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Why is it so hard to understand NCO = NE?

A lot of explanations about this matter depend on the fact that the foreign cash could be seen as a foreign assets. They say like "if you export a car and earn 100 yen, then it means that you have now ...
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3 votes
1 answer
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The Difference between investment and savings in CA identity

Mathematically speaking the current account is defined as: $$\text{CA}=S-I$$ where $S$ is savings and $I$ is investment. We know for a closed economy $S=I$ so $CA=0$. practically speaking for an ...
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2 votes
2 answers
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Are Investments positively or negatively correlated with interest rate

Having just begun self-studying economics, I apologise if this question is too simple. Do investments increase or decrease with increased interest rate? According to the small, closed economy model (...
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3 votes
1 answer
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Why FDI stock in the same year is different in the same reports?

From World Investment Report 2003, in 2000, the US has 12.4% GDP as FDI inward stock and 13.2% GDP as FDI outward stock. These numbers are equivalent to 1274720 million USD, and 1356960 million USD. ...
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1 vote
1 answer
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Terms definition in Balance of Payment

I have problems in distinguishing among terms in the Balance of Payment / the international balance sheet of a nation. As far as I know, on Assets and Liabilities sides of BPM, there are Portfolio ...
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