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Indeterminacy of equilibria in open economies

Objective



In a seminal contribution in 1961 Nundell introduced the theory of Optimal Currency Areas. His idea was that in the presence of imperfect factor mobility is not advantageous to fix exchange rates.
The objective of this project is to provide a microfoundation of this idea and to construct from that a macroeconomic model for policy analysis. A cash-in-advance model will be used, where a Central Bank is active in providing money to agents, there is no representative consumer and incomplete market hypotesis is done.
In such a framework both monetary policy is effective and Central Bank can choose a nominal variable, that remains indeterminate. If that variable is the interest rate - how we observe in reality - we can compare the effects of different exchange rate regimes on welfare. We can also analyze how actions undertaken from agents in a uncertain world are droven - in a keynesian sense - from the Central Bank.

Coordinator

UNIVERSITE CATHOLIQUE DE LOUVAIN
Address
34,Voie Du Roman Pays 34
1348 Louvain-la-neuve
Belgium

Participants (1)

Not available
Italy