Open Economy Dynamics in a Floating Exchange Rate Developing Country Context

U.S. Macroeconomic Policy Evaluation in an Open Economy Context Using Wavelet Decomposed Optimal Control Methods

“…The reduced form model in equations (3) through (8) expands the linear accelerator reduced-form block component matrix system of Crowley and Hudgins (2018a,b) and Hudgins and Crowley (2019) for each frequency range, j = 1, …, 5, as defined in table 1, where the βj;0 coefficients are constants and the number of lags for any given variable is denoted by L(.). The ir US j and ir f j blocks represent the wavelet decomposition of the short-term domestic (US) and foreign (G6) interest rates, respectively.…”

“…Next, Crowley andHudgins (2017, 2018b) and expanded the wavelet-based control model to simulate jointly optimal fiscal and monetary policy within a closed economy framework. 1 The first open-economy wavelet-based control models were developed as partial accelerator models by and Hudgins and Crowley (2019), which analyzed various policy simulations using South African data as a developing country example. This paper extends that analysis by including money supply as a operational monetary policy variable, and utilizes data from the US, which illustrates the application of the open economy version of the model to a developed economy.…”

“…Section 2 examines the wavelet decomposition of the data in the time-frequency domain, over the period 1973 -2018. Section 3 expands the methods employed by Crowley and Hudgins (2015, 2017, 2018a and Crowley and Hudgins (2019) to develop an open economy time-frequency optimal tracking model that generates feedback rules for monetary and fiscal policy.…”

Evaluating South African Fiscal and Monetary Policy Trade‐offs Using a Wavelet‐Based Model

“…This is the first research to simulate both monetary and fiscal policy in an open‐economy optimal control framework based on discrete wavelet analysis, and this paper focuses on the policy implications rather than the model derivation, which is detailed in a companion paper (Hudgins and Crowley, ). In simulating the resulting model, the research highlights the trade‐offs between fiscal and monetary policy, while integrating SARB monetary policy objectives regarding inflation and then clarifying the implications for the South African real exchange rate and the trade balance.…”

“…When the South African external sector and real exchange rate is the policy focus, Hudgins and Crowley () compares the case where the RER target is constant verses the cases where the target is depreciating over the policy horizon.…”