GDL

This paper explores one way to extend the New Open Economy Macroeconomics in an


empirical direction. Adapting maximum likelihood procedures, it estimates and tests an


intertemporal small open economy model with monetary shocks and nominal rigidities.


Results offer mixed support for a benchmark model where prices are assumed to be sticky


in the currency of the buyer. Price stickiness seems to be an important element, as overall


results are poorer for versions of the model in which prices either are flexible or are sticky


in the currency of the producer. The benchmark model does a better job explaining some


variables than others; in particular, it does a poor job explaining exchange rate movements.

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