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Working Paper
The stock market and exchange rate dynamics
This paper articulates a model of the small, open economy in which the stock market, rather than the bond market, determines domestic aggregate demand. It resembles in many respects the widely adopted dynamic Mundell-Fleming approach, but can, in some circumstances, exhibit output and asset price dynamics that differ in economically illuminating ways from that more standard framework. In particular, if the stock market effects are important enough, then a monetary expansion can result in real exchange rate appreciation, rather than depreciation. Anticipated fiscal expansion can, if the ...
Working Paper
Terms of trade, the trade balance, and stability: the role of savings behavior
In conventional models of the open economy, the impact on the trade balance of a change in the terms of trade depends upon whether the Marshall-Lerner condition on demand elasticities is satisfied. This paper shows that, in a model which incorporates rational savings behavior, the link between the Marshall-Lerner condition and stability may survive intact or may be severed, depending upon the precise formulation of savings behavior.
Working Paper
Labor market rigidities and unemployment: the case of severance costs
It is frequently alleged that the persistent, high rates of unemployment in many European countries are due, at least in part, to various labor market rigidities. One of these rigidities is the high cost of firing workers, compared with the cost in the United States, or in Europe in the early 1960s. ; This paper assesses the empirical importance of severance costs on labor demand. A partial equilibrium model of the firm's employment decision in the presence of significant severance costs is formulated and solved. The theoretical section of the paper identifies the following determinants of ...