Survey_CMS_2008

Abstract

The model consists of two symmetric countries of normalised population size s and 1 ? s, respectively: the euro area, denoted as the home country, and the United States, representing the rest of the industrialised world and denoted as the foreign country. In each country, there are four types of economic agents: households, firms, a fiscal authority, and a monetary authority. We further distinguish between two households which differ with respect to their ability to access financial markets, with one household only holding money as opposed to also trading bonds and accumulating physical capital. As regards firms, we distinguish between producers of tradable differentiated intermediate goods and producers of three non-tradable final goods: a private consumption good, a private investment good, and a public consumption good. In the following, we outline the behaviour of the different types of agents, characterise the model’s aggregate outcomes and state the aggregate resource constraint which needs to be satisfied in equilibrium. We focus on the exposition of the home country, with the understanding that the foreign country is similarly characterised. To the extent needed,foreign variables and parameters are indexed with an asterisk, ‘?’.