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International macroeconomic interdependence: the euro area and the us

Objective

I plan to use the standard "new-open-economy" framework, characterized by optimizing agents, nominal rigidities and monopolistic competition, to develop a two-country model capable of replicating the main stylized facts for the euro-area and the us economies. The analysis will incorporate the main differences between the two economies with respect to the degree of openness, the rigidity of labor markets and the integration of capital markets, and will investigate how these differences affect the international transmission of shocks. The model will be calibrated using aggregate euro-area and US data and dynamic simulations will be carried out to examine a number of relevant issues. The first aim of the project is to understand the transmission of external shocks across the two economies. Secondly, it will provide a framework that will enable me to conduct policy experiments such as (i) what is the appropriate policy response of the ECB to these shocks; (ii) can such a model explain persistent exchange rate fluctuations or misalingments (e.g., the euro's weakness); (iii) what is the appropriate framework for monetary policy in a world with important interdependencies. This research contribute to both the literature on monetary policy interactions and on European monetary integration.

Funding Scheme

RGI - Research grants (individual fellowships)

Coordinator

CENTRE FOR EUROPEAN POLICY STUDIES