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A Monetary, Open-Economy Model with Capital Mobility

Discussion Paper 67 | Published July 1, 1992

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Authors

Don E. Schlagenhauf

Jeffrey M. Wrase

A Monetary, Open-Economy Model with Capital Mobility

Abstract

This paper examines a two-country, monetary general-equilibrium model that includes a financial sector, capital mobility, and shocks to technologies and money-growth rates. Capital mobility allows agents in both countries to participate in rewards from relatively favorable shocks realized in either country. Currency exchange facilitates currency-intermediated international trade of consumption and capital goods. Qualitative and quantitative implications of the model for evolutions of variables are investigated. The quantitative analysis is performed by numerically solving and simulating the model. We focus on international monetary shock transmissions, and effects of monetary innovations on interest rates and nominal and real exchange rates.