Question
Chapter 9 (Carlin & Soskice) problem 3 Open economy model Assume you are in a small open economy with flexible exchange rates. The economy experiences
Chapter 9 (Carlin & Soskice) problem 3
Open economy model
Assume you are in a small open economy with flexible exchange rates. The economy experiences a permanent positive demand shock.
a)Draw the PC MR, the IS RX and the ERU AD graphs to help you explain the path back to medium run equilibrium.
b)Draw a graph of the real exchange rate over time and give a brief explanation of its path.
c)How does the medium run equilibrium vary from that in the closed economy?
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Introduction to Econometrics
Authors: James H. Stock, Mark W. Watson
3rd edition
133595420, 978-0138009007, 138009007, 978-0133486872, 133486877, 978-0133595420
