This paper is an attempt to analyze inflation dynamics in a small open economy as the result of the interaction between wage and price determination behaviors and the interest rate-exchange rate feedback in the context of Dornbusch's model. An extended version of this model is specified and analyzed formally. Then the model is estimated for five OECD countries using a full information maximum likelihood technique. Finally, simulations of the effect of monetary shocks are presented for four countries. © 1986.
Artus, P., & Bismut, C. (1986). Exchange rate and wage-price dynamics. A theoretical analysis and an econometric investigation. European Economic Review, 30(1), 57–90. https://doi.org/10.1016/0014-2921(86)90032-2