The US and the European Monetary System (EMS): A Stylised Asymmetrical Two-Country Model
Title: The US and the European Monetary System (EMS): A Stylised Asymmetrical Two-Country Model
Citation: Applied Economics, 1996, 28, 1, 13-20
Numerical simulation methods were used to explore the consequences of asymmetrical behaviour in a two-country model. The asymmetries are located in the asset and goods demand functions and in the parameters governing foreign exchange market intervention. In a stylized fashion, these asymmetries reflect differences that might be characteristic of differences between the USA and the European countries (the EMS). The model is in continuous time, with an overlapping wage contact set-up underlying the domestic inflation process, good demand functions which incorporate dependence on wealth and rational expectations. Shocks to the model reveal the effect of the asymmetries when compared to a fully symmetrical base case.
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