International macroe.. - Free

9.2. PRICING TO MARKET 303New International Macroeconomics Summary1. Like Mundell-Fleming models, the new international macroeconomicsfeatures nominal rigidities and demand-determined output.Unlike Mundell-Fleming, however, these are dynamic generalequilibrium models with optimizing agents where tastes andtechnology are clearly spelled out. These are macroeconomicmodels with solid micro-foundations.2. Combining market imperfections and nominal price stickinessallow the new international macroeconomics to address featuresof the data, such as international correlations of consumptionand output, and real and nominal exchange rate dynamics, thatcannot be explained by pure real business cycle models in theArrow-Debreu framework. It makes sense to analyze the welfareeffects of policy choices here, but not in real business cycle models,since all real business cycle dynamics are Pareto efficient.3. The monopoly distortion in the new international macroeconomicsmeans that equilibrium welfare lies below the social optimumwhich potentially can be eliminated by macroeconomicpolicy interventions.4. Predictions regarding the international transmission of monetaryshocks are sensitive to the speciÞcation of Þnancial structureand price setting behavior.