The focus is on the inter action between demand and supply in a small
open economy featuring the dynamics of private capital, public debt and
foreign assets. The overlapping generations model serves as a
microfoundation. It proves useful to consider different scenarios.
Exchange rates are either flexible or fixed. Money wages can be
flexible, fixed or slow. Monetary and fiscal policy may be exogenous or
endo- genous. Either budget deficits are allowed, or continuous budget
balance is postula- ted. Wh at are the implications of various shocks?
How does the chain of cause and effect look like? I had many helpful
talks with my colleagues at Hamburg: Michael Schmid (now at Bamberg),
Wolf Schäfer and Johannes Hackmann. In addition, Daphni-Marina
Papadopoulou and Christine Schäfer-Lochte carefully discussed with me
all parts of the manuscript. Last but not least, Doris Ehrich typed the
manuscript as excellently as ever. I would like to thank all of them.
CONTENTS INTRODUCTION 3 PART 1. FLEXIBLE EXCHANGE RATES 11 CHAPTER 1.
BASIC MODEL 11 1. Flexible Money Wages 13 13 1. 1. Overlapping
Generations 1. 2. Short-Run Equilibrium and Long-Run Equilibrium 23 1.
3. Stability 27 1. 4. Shoeks 30 2. Fixed Money Wages 34 34 2. 1.
Overlapping Generations 2. 2. Short-Run Equilibrium and Long-Run
Equilibrium 39 2. 3. Stability 41 2. 4. Shoeks 44 3. Slow Money Wages 52
3. 1. Special Case 1= 0 52 3. 2. General Case 60 4. Monetary Poliey 64
4. 1.
