MONETARY AND FISCAL-POLICY IN INTERDEPENDENT 2-SECTOR ECONOMIES

This paper considers a two-country-two-sector world with tradables and non-tradables, floating exchange rates, perfect capital mobility and sluggish labour markets. The model assumes either nominal or real wage tigidity and either perfect or imperfect substitution between home and foreign-produced tradables. The effects and spillover effects of fiscal and monetary shocks are compared with the standard results from well-known macroeconomic two-country counterparts of the model. The purpose is to establish the degree of robustness of the latter with respect to disaggregation and to gain insight into the sectoral transmissions of the shocks.