This paper shows that the economy of any country can be presented as three different shells such as: economic shell of a big, a medium and a small business. The new concepts were introduced such as: volume of an economic shell, coefficient of shell’s expansion (compression) etc. These shells can expansion or compress under action by internal or external powers and when shell expansions − it mea...

In Krawczyk and Kim (Macroeconomics, 2009), we studied the problem of setting monetary policy in a closed economy using viability theory. Policies derived from the application of viability theory are ‘good enough’, rather than ‘optimal’. In this paper, we extend the analysis to a small open-economy model where the exchange rate becomes an additional channel for the transmission of monetary poli...

This short paper provides an example which shows that the type of the spillover effect from one individual to another (and hence whether we under-tax, or overtax, in a Nash equilibrium relative to a cooperative one) can be reversed when we introduce dynamics into a model with public goods. Specifically, the spillover effect changes from positive (which is the static, traditional case) to negati...

In this paper, the government consumption spending effects in a small open economy(SOE), are explored. In a standard active monetary/passive fiscal policy(AM/PF) regime, openness reduces the effectiveness of the government spending on output through the terms of trade decrease. Consumption decreases less than in the closed economy, but this effect is so weak that the output does not rise more t...

This paper examines the determinants of stock returns in a small open economy using an APT framework. The analysis is conducted for the Swiss stock market which has the particularity of including a large proportion of firms that are exposed to foreign economic conditions. Both a statistical and a macroeconomic implementation of the model are performed for the period 1986-2002 with monthly retur...

This paper compares two types of monetary policy: price-level targeting and inflation targeting. It reviews recent arguments that favour price-level targeting, and examines how certain factors, such as the nature of the shocks affecting the economy and the degree to which agents are forwardlooking, bear upon the arguments. The paper then extends the analysis to a small open economy such as Cana...

Building on insights from Katzenstein and Gellner, the authors theorize that small, culturally homogeneous countries with a strong national identity have institutional advantages that tend to enhance their long-term socioeconomic performance. They can coordinate policy in ways that help them respond successfully to external vulnerabilities by building institutional capacities for cooperation, s...

We study a small open economy characterized by two empirically important frictions – incomplete financial markets and an inability of the government to commit to policy. We characterize the best sustainable fiscal policy and show that it can amplify and prolong shocks to output. In particular, even when the government is completely benevolent, the government’s credibility not to expropriate cap...