Macroeconomic Redux Model Extended With Exogenous Technology

The new open economy macroeconomics originated in the famous paper "Exchange Rate Dynamics Redux" written by Maurice Obstfeld and Kenneth Rogoff in 1995. The Redux model establised by them incorporates monopolistic competition and nominal rigidity into dynamic general equilibrium model innovatively. Further more, they established the well-specified micro foundations of macroeconomic analysis. Since then, the model has been extended in various dimensions by other economists and still been regarded as the "workhorse" of the new open economy macroeconomics. Wang Sheng(2005) introduced a Cobb-Douglas production function including capital factor into the basic Redux model and researched the effect of unpredicted money shocks on economy.On the basis of Wang's model, this paper introduces technology factor as a exogenous variable into the Redux model. Solving the model with dynamic optimization method, we investigate how exogenous technology shocks impact on resident's production,consumption and welfare with flexible prices and with sticky prices respectively. The conclusion is technology shocks would impact production and consumption much more with flexible prices than in condition of sticky prices. This conclusion also indicates that capital factor plays an important role in the differentia of economy movement with flexible prices and with sticky prices.This paper is divided into four parts. Chapter 1 is introduction, briefly reviewing the development of open economy macroeconomics. Chapter 2 introduces the basic Redux model and summarizes some extended works, including a detailed introduction and analysis about Wang's model. Chapter 3 establishes a new model with capital factor on the basis of Wang's model, then we discuss technology shocks on economy with flexible prices and with sticky prices respectively. Chapter 4 is conclusions and explanations of the model.