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A Two-Country Model with Asymmetric Phillips Curves and Intervention in the Foreign Exchange Market

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  • Artis, Michael J
  • Gazioglu, Saziye

Abstract

In this paper simulation methods are employed on a two-country, rational expectations continuous-time model to explore the consequences of asymmetrical wage-price processes. As an additional feature the effects are explored of reductions in the degree of financial integration between the two countries. The set up is designed to mimic the asymmetry within the European Monetary System between the wage-price process in Germany and that in the other member countries. The results demonstrate that country differentiation in respect of the wage-price process has important leverage on the response to a variety of shocks and that reduced financial integration (mimicking foreign exchange controls) is an uncertain offset.

Suggested Citation

  • Artis, Michael J & Gazioglu, Saziye, 1987. "A Two-Country Model with Asymmetric Phillips Curves and Intervention in the Foreign Exchange Market," CEPR Discussion Papers 172, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:172
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    Citations

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    Cited by:

    1. Barry Eichengreen & Fabio Ghironi, 1999. "Macroeconomic Tradeoffs in the United States and Europe: Fiscal Distortions and the International Monetary Regime," Boston College Working Papers in Economics 467, Boston College Department of Economics.
    2. van der Ploeg, Frederick, 1987. "International Interdependence and Policy Coordination in Economies with Real and Nominal Wage Rigidity," CEPR Discussion Papers 217, C.E.P.R. Discussion Papers.

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