Exchange rate and wage-price dynamics. A theoretical analysis and an econometric investigation

  • Artus P
  • Bismut C
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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.

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  • Patrick Artus

  • Claude Bismut

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