Moeonom Coodnon nd Inflon Tgeng n Two-Coun Model Eu Jung Chng Melo Kfou Munho Jonílo Rodolpho Texe Jnu 00 A Th ppe del wh moeonom oodnon nd lzon whn new Kenen fmewok. The dnm emen of wo-oun model mde mulon ung lne qud mehod. We ompe opml mone pol ule of hee pe of equl: moeonom oodnon Nh nd Skeleg emphzng he elve ze nd degee of openne of he eonome. Unde he nflon ge we oeve hghe oupu nd nflon volle due o he eonom eon fom he ohe oun pol. The onl exepon he e of opml moeonom oodnon ule. Th dnm model pon ou h moeonom oodnon pol ee hn non-oodnon ule uppong he donl eul found model. We eleve h ou dnm fmewok delng wh eonome n neon pomng eeh e. Eu Jung Chng Cenl Bnk of Bzl. I would lke o hnk Bzln Cenl Bnk nd CNPq fo he uppo o h eeh. E-ml: eu.jung@.gov.. Melo Kfou Munho Adve of Cenl Bnk of Bzl. E-ml: Melo.kfou@.gov.. Jonílo Rodolpho Texe Full pofeo Depmen of Eonom - UnB. He would lke o hnk CNPq fo he uppo o h eeh pogm. Eml: jonloexe@homl.om The vew expeed n h wok e of he uho onl nd do no neel onde wh hoe of he enl Bnk of Bzl.
- Inoduon Nowd he fomon of g eonom lok mng moeonom lzon eomng even moe mpon one n noed n he Euolnd. The mone pol oodned onl one Cenl Bnk. Afe he uulene n he ho un pole h Meou wll hed o he me deon. The leue ou mo oodnon ondele nd ed wh he ppe of Hmd 976 nd lo wh Cnzone & G 985 Rogoff 985 Kehoe 989 Cnzone & Hendeon 99. One of f ppe ou eonom oodnon mong oune w Ronon 97. The ppe evolve he de gme mong oune nd he ege nd elon mong pne n epone o dvee uon. The mn on e: depeon of he exhnge e wge eduon expo ude nd ff elon. In h deon ed n exen eeh gend foung on he de pol oopeon mong non. Mone pol nd exhnge egme wee nlzed Hmd 976 985 ung ox lled Hmd dgm whee he poenl gn of mo oodnon eme moe vle. Ung he dgm w pole o how h Nh nd Skeleg equl wee nfeo oluon hn oodnon whh wee loed n he Peo on uve. In he me lne howng h oopeon w dele hee he Cnzone & G 985 ppe. The nlzed he eul of he me exogenou hok fo exmple n ol hok n wo lok n he e US nd he e of he wold ROW. The nl evolve hee pe of exenle of he mo pol deon: exenl wh negve mme egge-hnegho effe whee n expnon pol n one oun expo unemplomen o he ohe; exenl wh pove effe loomove effe whee n expnon pol n one oun e he GDP n he ohe; exenl wh mme whee he expnon n US nee he podu elewhee u he expnon n he ROW deee he podu n US. Thee uho onluon lel poned ou h he egme wh pove o negve exenle hee oom fo oodnon ngng ee eul hn Nh o Skeleg eul. Fo he e of mme exenl he eul e no o le. The ppe of Hmd 976 Cnzone & Ge 985 nd Wlh 998 eh ml onluon. Thoe emphze h oodnon dele n n eonom pon of vew. The mjo dwk eled o hoe model e: hoe e model nd he pol numen o onol he eonom. All he pol deon e ken he me me nd do no onde he mmede effe. The undendng of he mo oodnon eome moe dfful when he pol deon e no nhonzed nd when he e gdul. The ohe dwk how he numen hoen n genel n ode o mplf he model nd no ondeng pl me.
On he on Rogoff 985 ung mone model how h oopeve oluon m e nfeo o he non-oopeon when he uhoe do no ke no oun he eon of he pve eo. When he uhoe fo oh oune o oo he emplomen level hen he pve eo ge fd of exhnge e depeon nd dju he wge nd pe level neng nflon. Rogoff d h oodnon evolve edl ue n he ommmen of he uhoe n fghng nflon. Kehoe 989 ejeed Rogoff 985 pon of vew peenng oune exmple whee govenmen n mxmze he welfe of he eonom ngng ou ee eul wh mooodnon hn wh Nh equlum. Thee model when hee ommon eg eween he pve gen nd he govenmen e queon ou edl nd neempol nonen. All he quoed ppe e wo-oun model. When moe hn wo oune e evolved he followng e e peened: ll he oune wok n oodnon; hee no oodnon mong hem nd; onl u-e of hoe oune e wllng o oodne mong hem. Pl oodnon onl unle when no nde oun nde o no oude oun oude e wllng o hnge he u quo. Thoe queon of nde nd oude nd ohe eled wh nenve fee-dng e ddeed Epno-Veg & Yp 99. In he 90 hee e ome ppe ondeng how he mone pol hould e ondued. Among ome ppe he nflon geng ppoh m e poned ou he mjo heoel nd pl efeene mone ule nd h fmewok h een doped n mn oune. The nflon-geng fmewok llow u o e he neon mong he mjo vle n mple mnne ned of he g eonome model. The peen ppe ue he nflon-geng fmewok n wo-oun model llowng u o onde moeonom lzon nd oodnon eween wo oune. The wooun model n exenon of Bll 998. The pmee e e n w o heze he dffeene n ze nd degee of openne of he wo oune. Inll w ued hee opml mone ule: oodnon equlum Nh nd Skeleg. The eon funon depend on he oupu of he wo eonome nflon n exhnge e hok he lgged exhnge e nd lo dependng on he nflon of he ohe oun n ome pef ule. The opml ule wee found ung qud lne model. Sevel mulon wee pefomed n ode o lule he nflon oupu nd nee e vne egdng he eon funon o demnd hok o o hok o even n exhnge hok.
The dnm model how u h he oupu nd nflon lzon moe effen when he oodnon ule ued. The gee he welfe gn he moe dependen nd open he oun. If mo oodnon mpole n he e of one oun hvng ll he elevn nfomon of he ohe one nd f ume lede poon hee would ng ou lzon welfe gn. Whou oodnon mone ule wh moe wegh n nflon uned ou een le effen n nflon nd oupu ene. Hene he moe dependen nd opene he oun le wegh hould e pled n nflon o vod n nee n he oupu nd nflon volle. The elevne of h knd of model h llow he neon of wo eonome geng gge lel n moe glol nd neged wold. - Two-Coun Model The oe of wo-oun model ued n h ppe ed n Bll 998 ddng up he exenle of he ohe eonom oupu. The model h fve equon: he dome nd foegn oun demnd he dome nd foegn uppl nd he ffh equon h onne oh eonome he exhnge e. The model pefon he followng: u u e e 5 whee he log of he oupu gp el oupu mnu he poenl one he el nee e he el exhnge e nee men exhnge e depeon n he dome eonom - he nflon e u he demnd hok e he o-puh hok nd v he exhnge e hok; e e he uul pmee of he eonom. The uppe e ek men exenl vle nd pmee. All he hok e whe noe menng zeo men nd onn vne. The model lne ound he ed e vlue. Inflon el nee e nd exhnge e e ondeed zeo n he ed e.
Phllp Cuve Equon nd peen he Phllp uve. Eh one ele nflon wh lgged vlue lgged oupu gp hnge n he exhnge e nd he onemponeou o hok. A hnge n he exhnge e ffe nflon due o mpoed pe. The equon mege of he mpoed nd dome nflon. The pefon fo he dome nflon : d e 6 Equon 6 ml o Phllp uve fo loed eonom. Impoed nflon gven fo he ol nflon of he pevou peod dded o popoon of he lgged oupu gp. Impoed pe follow puhe powe p o h nflon gven : 7 whee mpoed nflon eul of he ol nflon of he l peod plu n hnge n he exhnge e n he l peod. In he ohe hnd nflon n he peen peod gven equon wegh vege of dome nflon nd mpoed one kng he he of mpoed good φ. The followng dene hold: φ e e φ φ e. Rel Exhnge Re Equon 5 onne he wo eonome he el exhnge e whh ele he nee e dffeenl. Th elonhp pue he fnnl mke ehvo: n nee n he el nee e un he dome e moe ve nd o ue exhnge e ppeon. Ohe hng h ffe he exhnge e he hok n he exhnge e h pue he expeon nd he onfdene of he pve gen. Equon 5 n e oned lne ppoxmon of he lne of pmen equon. The lne of pmen equon h he uen oun expeon TC nd he pl equon MCA. The uen oun povel eled wh he el exhnge e nd he pl equon povel eled wh he el nee e dffeenl. Hene: TC MCA E 0 8
The lne ppoxmon of he equon 8 ng u o he equon 5 unle he exhnge e hok. In he ene of he ule nd unde onl expeon gve u h E 0. Thee e ohe dffeen heoe ou he exhnge e ehvo. Some of hem e foued on he vle welh nd de; ohe gve moe ole on he puhe powe p nd o he unoveed nee e. Ou ppe emphze he ole fo he de lne nd o he nee e dffeenl nd no enon o he ole of he welh nd he de ok. Pmee of he model The pupoe of h ppe no he emon of he pmee of he uul model fo he Bzln eonom o n ohe u o le hem o fnd lzed model n ode o mule dffeen pol ojeve. The lon w ed n eul found n he leue. Some pmee e e o pue he dffeene n he degee of openne nd n he elve ze of he eonome. Tle peen he eul of he lon fo n open eonom. Bll 998 how he eul fo Amen eonom; Hldne & Bn 998 fo he Englh; Bonomo & Bo 00 nd Fe & Munho 00 fo Bzl; nd Wlh 998 ue d ed n ohe uho ppe. Wh he exepon of Bll 998 nd Wlh 998 ll he eul e fo quel model. Tle. Pmee of he Suul Model Bll 998 H&B 998 B&B 00 F&M 00 Wlh 998 08 08 09 07 08 06 05 05 09 05 0 0 008-00 0 0 0 0-0 0 0 0 0
whee: : demnd el fo he exhnge e : demnd el fo he el nee e : uo-egeve pmee : nflon el n elon o he demnd : nflon el n elon o he exhnge phough Compng ll he pmee ued n he mll-le uul model Tle pon ou he onen n he mgnude nd he gn of he pmee ued hoe uho. The IS uve nd he Phllp uve n Bll 998 nd Fe & Munho 00 model e kwd-lookng. Hldne & Bn 998 model h kwd-lookng IS uve nd he Phllp uve weghed vege of kwd-lookng nd fowd-lookng em wh mll wegh n he l em. The exhnge e pmee n he IS uve nd n he Phllp uve peen mll mgnude n Bonomo & Bo 00 model howng how loed he Bzln eonom omped wh he US nd Englnd. Tle how he pmee ued n he mulon h e ed on hoe peened n Tle. Tle. Pmee fo he Two Eonome Dome Foegn 0 0 05 0 5 08 0 8 0 0 0 0 0 0 Thoe pmee nend o epeen lzed f h he dome eonom moe loed wh mlle phough fom exhnge e o nflon < ; nd dome oun le dependen o foegn oun oupu menng h he ohe eonom demnd wll ffe le he dome eonom hn ve-ve <.
Thoe led vlue e eonle po. Hene he mulon eul e onl ndve of he lzed f. Howeve he eul e ffeed n hnge of uul pmee. - Opml Equlum Rule In h eon we peen ome del ou how o on opml equlum ule. Expe ome pul dnm equon mo of hem do no hve lge oluon nd he need eed ompue lgohm o olve. Svenon 997 peen pul dnm equon wh lge oluon. In he opml dnm oluon of wo-oun model we ue he lgohm of lne qud mehod. Th mehod exenvel ued n Rel Bune Cle Theo RBC whee he eun funon mxmzed. Nevehele n ou e he lo funon mnmzed. The lne qud lgohm ed on Díz-Gménez 999 nd mplemened on ompue lnguge Ml 5.. In hee elow ueon we how ome mplemenng del o on hee pe of oluon: moeonom oodnon equlum Nh equlum nd Skeleg equlum.. - Moeonom Coodnon Equlum Two oune ge moeonom oodnon when he mnmze he me ojeve funon wh me wegh o he oupu unde he onol of he mone numen e. Th : ]} { mn 0 E λ λ β 9 uje o: u 0 u e e
Eh eon equon n e eped n hee p: e vle n me ; onol vle n me nd hok n me. Defnng he e vle whee o. Then: The vlue funon of moeonom oodnon n dnm pogmmng fom : ] ] ] mn{ V λ } ] V β λ 5 uje o: u u u u e u e u 6 whee nd nex peod e vle fo o. The eun funon : ] ] ] { R λ } ] λ 7 The opml mone pol ule wh oodnon e oned mulon ung expeon 5-7 wh pmee gven Tle. Thee ule e funon of x gumen f hown expeon elow. The oeffen of hee
gumen e ken o pef e wh λ he wegh ued o oupu gp n lo funon. 8 6005 06806 07 006 08 0580 9 7 5 0777 0807 0860 079 The gnl of oeffen of ove eon funon e ll oheen wh h pon ou leue. The nee e e povel wh oupu gp nd nflon e o oh eonome. Rellng h hghe nee e men le demnd nd ppeed of el exhnge e wh ng eduon n nflon. We genee mn mple wh ouome fo nflon oupu nd nee e ung opml ule nd demnd upple nd exhnge e hok. Afe h he vne of nflon nd oupu wee lule. The vne oned wh dffeen vlue of wegh gven o oupu gp n he lo funon e ploed n ngle gph howng he de-off eween nflon e vne nd oupu vne. Nex eon ng moe nl of h gph.. - Nh Equlum Nh equlum no oodned pol. The pol uhoe hooe nee e o mnmze lo kng gven he nee e of he ohe oun. Eh oun dede he pol kng no oun h he ohe oun h led deded nd would no hnge dung h peod. The Nh equlum emen n h eon ml h ken Wlh 998. The home oun lo funon : mn 0 β E λ 0 nd foegn oun lo funon : 0 mn β E λ ]
The equlum emen ml o oh oune. Then we ke home oun o fou. Tkng he ggege demnd nd Phllp uve expeon o me we hve: u e Followng he me emen gven o oodned oluon eh eon equon n e eped n hee p: e vle n me ; onol vle n me nd hok n me. The wo e vle nd e defned : 5 The vlue funon of Nh equlum n dnm pogmmng fom : V mn{ ] λ ] βv uje o: u u e 6 whee nd nex peod e vle fo o. The opml mone pol ule o home oun funon of fve gumen f whle o foegne oun h f ule. The oeffen of hee gumen e ken o pef e wh λ he wegh ued o oupu gp n lo funon. 7 869 0.87.7 005 0 8 066 009 079 0878 0876
The gph of de-off eween nflon e vne nd oupu vne oned n ml w oodned equlum.. - Skeleg Equlum Skeleg equlum lo known lede-followe equlum nohe exmple of unoodned pol. The pol uhoe hooe nee e o mnmze lo kng no oun how he ohe pol uho wll epond o he lede hoe of nee e. We ke home oun lede. The exenl eon funon gven Nh equlum j j whee j nd j e he oeffen h depend on wegh ued o oupu gp vne n lo funon. The vlue funon of Skeleg equlum n dnm pogmmng fom : ] ] mn{ V V β λ uje o: u u u u e u e u j j 9 whee nd nex peod e vle fo o. The opml mone pol ule o home oun funon of x gumen f whle o foegn oun h f ule. The oeffen of hee gumen e ken o pef e wh λ he wegh ued o oupu gp vne n lo funon. 00996 07 009 06 07 58 0 0876 087 079 0668 090 0
We n ee he oupu gp nd nflon e of foegn oun o he lede eon funon whle he followe ke onl lede oupu gp on opml eon funon. The gph of de-off eween nflon e nd oupu gp vne oned n ml w efoe. - Smulon Reul Volle of nflon nd oupu e ued o meue he pefomne of dffeen mone pol ule followng Tlo 999 Bll 998 Svenon 998. The pol ule h ondu o le nflon nd oupu volle ondeed e one. We how hee oundng pon en up mulon: - Ung ome del gven n eon we mde mulon o on nflon e oupu gp nd nee e volle hown n Tle. Eh opml ule oned wh pmee vlue gven Tle nd kng he me wegh ued o nflon e nd oupu gp n he lo funon. The vne e ken ondeng ll knd of exenl hok lke: demnd hok o hok nd exhnge e hok; ll of hok e whe noe. Tle. Volle of Inflon e Oupu Gp nd Inee e Home oun Foegn oun Equlum pe V V V V V V Coodnon 57 7 9 6 8 Nh 5 86 6 7 0 Lede home 98 76 98 6 90 6 Lede foegn 0 7 5 59 80 The Tle how h unde moeonom oodnon pol oh oune hve le nflon nd oupu gp volle hn n ohe pe of pol. Nh equlum h lel woe volle o oh oune omped o oodnon nd Skeleg ule. Bu ompng Nh equlum wh Skeleg equlum we n ee he lede h ee pefomne.
In ho ou wo-oun nflon ge dnm fmewok poned ou h moeonom oodnon dele. We n ge he me eul mulng dffeen omnon of hok. Th eul n lne wh model lke he wok of Cnzone & G 985 Feldng & Mzen 996 Wlh 998. Tlo 999 ng u emk ou voll of pol numen n h oune nle of dffeen mone pol ule. The Tle how h he voll of nee e hghe n he e of oodnon equlum. The le volle of oupu gp nd nflon e n oodnon equlum ome fom n ggeve pol epone o he exenl hok. In ho he oodnon equlum ondu o le nflon e nd oupu gp volle u no he e o nee e nd exhnge e volle. - The nex x fgue how he de-off of home nd foegn oune unde hee pe of opml ule. The de-off of Fgue nd e he home nd foegn oune unde oodnon equlum ule. Fgue. Home Coun Fgue. Foegn Coun Volle of Inflon nd Oupu 6 5 0 0 0 0 0 0 Volle of Inflon nd Oupu 6 5 0 0 0 0 0
The de-off of Fgue nd e he home nd foegn oune unde Nh equlum ule. Fgue. Home Coun Fgue. Foegn Coun Volle of Inflon nd Oupu Volle of Inflon nd Oupu 6 0 8 6 0 0 0 0 0 0 5 0 5 0 5 0 5 0 0 5 0 5 0 5 The de-off of Fgue 5 nd 6 e he home nd foegn oune unde Skeleg equlum ule. Fgue 5. Home Coun Fgue 6. Foegn Coun Volle of Inflon nd Oupu Volle of Inflon nd Oupu 9 8 7 6 5 0 0 0 0 0 0 0 5 0 5 0 5 0 5 0 0 5 0 5 0 5 Thee fgue how he effen fone of nflon e nd oupu gp volle unde he opml ule. Eh mulon on of wo ep: opml ule of home nd foegn oune e oned o eh pe of equlum nd; ung hee ule nd
ondeng ll pe of exenl hok we genee mn mple of vle nd hen vne. The fgue how he neng volle of nflon e nd oupu gp we gn moe wegh o nflon lzon expe o moeonom oodnon pol Fgue nd Fgue. Th f ou eue he opml ule doe no onde he eon of he ohe oun. The mulneou neng volle of nflon nd oupu do no ou unde moeonom oodnon ule eue oh oune gee n he ojeve. Two-oun model equon pon ou h he lzon of oupu gp nd nflon e ou n wo hnnel: he nee e nd he exhnge e. The lowe he wegh n oupu menng le ommmen wh lowe nflon gee he volle of oh vle. In he ohe hnd hghe oupu gp lzon doe no eul n nflon e delzon. The Fgue nd Fgue 5 how he de-off unde Nh equlum ule. The neng volle of nflon e nd oupu gp we gn moe wegh o nflon lzon n lo funon e moe evden o he foegn oun. In ohe wod oun eome moe open nd dependen even moe dfful o nee he wegh n nflon. To h pe of oun no eommended nflon ge u flexle ge. In ho oun wh "gee" openne nd "moe" dependen n ondu o he neng volle of oh nflon e nd oupu gp whou moeonom oodnon. - The opml ule oeffen depend on he uul pmee of model nd he wegh gven o oupu gp n he lo funon. We pon ou wo uul pmee: he degee of openne nd elve ze of oun. The mulon ke he pmee gven n Tle. < heze he home oun le dependen hn foegn oun nd < men h dome oun le open omped o foegn oun. Anohe mulon mde kng he gee degee of openne nd gee elve ze of wo oune hn efoe. The oeffen of hee mulon e onen em of he gnl nd mgnude wh pevou one. The Tle how he oeffen ung ognl pmee nd he Tle 5 ung new pmee vlue.
Tle. Nh Equlum wh 0 < 0 nd 0 < 0. 869 087 7 0 005-0 009 066 0 079-0878 0876 Tle 5. Nh Equlum wh 005 < 0 nd 0 < 0 5. 5657 0075 59 0 067-059 058 0575 0 06689-07 05 The loe he eonom le mpon e he ohe oun vle nd lo he exhnge e hok nd lgged exhnge e vle. Th eul h gee he degee of openne nd dependene of ohe eonom mlle he mone pol eon n em of nee e n epone o nflon e nd oupu gp. We n ge he me eul wh ohe pe of opml ule. 5 - Conludng Remk Summng up we n pon up he followng mn onluon: - The mo oodnon equlum ng ou le volle oupu nd nflon hn Nh nd Skeleg equlum; - he gn of lzon gee fo moe dependen nd moe open eonom; - he oun whh h moe nfomon nd doped lede poon peen moe le eonom; - n he en of oodnon moe n-nflon pol eul n gee oupu voll eng woe o moe dependen nd open eonom; - moe dependen nd open eonom hould epond moe ggevel o exhnge e hok. In wo-oun model w pole o llue ome lzed queon nd deve ome onluon ou dffeen pe of he mone pol. Howeve mpon o e h ome mpon pe fl pol nd ohe uul pe of he eonom
e no ken no oun n h ppe. So mpon o ke wh uon ome of ou mulon eul n ode o ue mone pol gudne. Refeene Bll L. Pol Rule fo Open Eonome. NBER Wokng Ppe 6760 998. Bll L. Effen Rule fo Mone Pol. NBER Wokng Ppe 595 997. Bennke B. S. & Mhkn F. S. Inflon Tgeng: A New Fmewok fo Mone Pol? Jounl of Eonom Pepeve v. n. 997. Bonomo M. A. & R. D. Bo. Reg Moneá e Dnâm Moeonôm no Bl: Um Aodgem de Expev Ron. Bno Cenl do Bl Wokng Ppe 8 00. Cnzone M. B. & J. A. G. Mone Pol Gme nd he Conequene of Non- Coopeve Behvo. Inenonl Eonom Revew v. 6 n. p. 57-56 O. 985. Cnzone M. B. & D. W. Hendeon. Mone Pol n Inedependen Eonome: A Gme-Theoe Appoh. The MIT Pe Cmdge 99. Díz-Gménez J. Lne Qud Appoxmon: An Inoduon. In R. Mmon e A. So ed Compuonl Mehod fo he Sud of Dnm Eonome. Oxfod Unve Pe 999. Epno-Veg M. & C. K. Yp. On he Sunl of Inenonl Coodnon. Inenonl Eonom Revew v. 5 n. p. 8-96 M 99. Fe P. S. & Munho M. K. A Smple Model fo Inflon Tgeng n Bzl. Bno Cenl do Bl Wokng Ppe 8 00. Hldne A. G. & Bn N. Fowd-Lookng Rule fo Mone Pol. In Tlo J. ed Mone Pol Rule. Unve of Chgo Pe 999. Hmd K. A Seg Anl of Mone Inedependene. Jounl of Poll Eonom 8 n. p.677-700 976. Hmd K. The Poll Eonom of Inenonl Mone Inedependene. The MIT Pe 985. Kehoe P. Pol Coopeon Among Benevolen Govenmen M Be Undele. Revew of Eonom Sude v.56 n.86 p. 89-96 989. Rogoff K. Cn Inenonl Mone Pol Coopeon Be Counepoduve?. Jounl of Inenonl Eonom v. 8 985.
Rome D. Kenen Moeonom Whou he LM Cuve. NBER Wokng Ppe 76 000. Svenon L. E. O. Open-Eonom Inflon Tgeng. NBER Wokng Ppe 655 998. Tlo J. B. ed. Mone Pol Rule. Chgo: Unve of Chgo Pe 999. Wlh Cl E. Mone Theo nd Pol. The MIT Pe 998.