Dynamic Analysis Of Open Economies

Preface

Scope of the Investigation

Notation

List of Symbols

Part One Analytical Concepts and Tools of Comparative Dynamic Analysis


1 State-Space Representation of Dynamic Models


1.1 Analytical Models


1.2 State-Space Representation


1.3 Notion of Equilibrium and Long-Run Policy Implications


1.4 Example: A Balanced Growth Path of a Small Open Economy


2 Variational Methods in Comparative Dynamic Analysis


2.1 Introduction


2.2 Reference Time Paths


2.3 Variational Equations


2.4 Sensitivity Analysis


3 Variational Dynamic Equation: An Example of Fiscal Policy in a Macroeconomic Model


3.1 Model


3.2 Momentary Equilibrium


3.3 Dynamics


3.4 Long-Run Equilibrium


3.5 Variational Relations: Shifting Momentary Equilibrium


3.6 Variational Dynamics

Appendix


4 Dynamic Policy Multipliers (Impulse Response Functions)


4.1 Dynamic Multipliers of Continuous Time Models


4.2 Discrete-Time Policy Multiplier


4.3 Multiplier in a Small Open Economy: An Example


5 How to Evaluate Structural Differences: Application of Perturbation Theory


5.1 Basic Procedure


5.2 Structural Perturbation Method


5.3 Choice of State Vectors in Models of Interdependent Economies


5.4 Example: Effects of Trade on National Incomes


6 Controllability and Theory of Economic Policy


6.1 Controllability


6.2 Path Controllability


6.3 Policies with No Spill-Over Effects


6.4 Stabilizability


6.5 Example


7 Linkages of National Economies


7.1 Introduction


7.2 Interest Rate Linkage


7.3 Price Linkages


7.4 Terms-of-Trade Linkage


7.5 Expectations


8 Sources of Dynamics and Their Interactions


8.1 Variational Dynamic Equations


8.2 Example


8.3 Regressive Expectations and Consistency cum Stability


8.4 Example

Part Two Small Open Economies


9 A Growing Economy: Influences of Capital Growth on the Dynamic Multiplier


9.1 The Model


9.2 Fiscal Multipliers


9.3 Numerical Example


9.4 Discussions and Summaries


10 Stabilization Policies in a Small Open Economy


10.1 The Model


10.2 Long-Run Equilibrium


10.3 Variational Differential Equations


10.4 Short-Run Stability of the Variational Dynamics


10.5 Policy Reaction Functions

Appendix

Appendix


11 Short-Run Comparative Dynamic Analysis of a Small Open Economy with Variable Wage Rates


11.1 The Model


11.2 Long-Run Equilibrium


11.3 Short-Run Analysis


11.4 Are Variable Wage Rates More Inflationary? An Example of Structural Perturbation Analysis


11.5 Numerical Examples


11.6 Elaborations

Appendix The Variational Disposable Income Expression

Part Three Multiple-Country Models of the World


12 Two-Country Model: A Preliminary Analysis


12.1 Implications of Structural Differences


12.2 Distributional Effects of Monetary Policies


13 Monetary Policies in a Two-Country Model of the World


13.1 Introduction


13.2 Structural Perturbation Analysis


13.3 Policy Sensitivity and Distributional Effects


13.4 The Model


13.5 Reduced Form Equations of the Reference Variational Model VMo


13.6 Dynamics of the Reference Model


13.7 Dynamics of VM


13.8 Policy Effects


13.9 Elaborations on the Basic Model


13.10 Numerical Examples

Appendix Calculation of the Averages and the Differences


14 Two-Country Model of the World under Key Currency Regime


14.1 Introduction


14.2 The Model


14.3 Variational Dynamics


14.4 Stability Analysis under Rigid Wage Rates


14.5 Stability: Flexible Wage Rates


14.6 Elaborations on the Basic Model

Appendix

Appendix

Appendix


15 Interdependence in a Three-Country Model


15.1 Introduction


15.2 The Model


15.3 Benchmark Model


15.4 Nonsymmetrical Model: Distributional Effects of Instruments


15.5 Nonsymmetrical Model: Monetary Union

Appendixes

A Dynamic Multipliers of ARMA Model

B Disposable Income Calculation

C Regressive Expectations and Perfect Foresight Assumption

D Short-Run Stability of Variational Equations

E Calculation of the Transition Matrix

F Perturbation Analysis of Matrix Exponential Functions

References

Index