Title: Towards new open economy macroeconometrics
Description: "I develop a model that improves upon the recent literature in open economy macroeconomics in that it lends itself more directly to empirical investigation.  I solve the stationarity problem that characterizes many existing models by adopting an overlapping generations structure  l̉a Weil (1989).  I model nominal rigidity by assuming that firms face explicit costs of output price inflation volatility.  The specification generates an endogenous markup that fluctuates over the business cycle.  I identify the two economies in my model with Canada--a small open economy--and the United States--taken as an approximation of the rest-of-the-world economy.  In the second part of the paper, I present a plausible strategy for estimating the structural parameters of the Canadian economy.  I do so by using nonlinear least squares at the single-equation level.  Estimates of most parameters are characterized by small standard errors and are in line with the findings of other studies.  I also develop a plausible way of constructing measures for nonobservable variables.  To verify if multiple-equation regressions yield significantly different estimates, I run full information maximum likelihood, system-wide regressions.  The results of the two procedures are similar.  Finally, I illustrate a practical application of the model, showing how a shock to the U.S.  economy is transmitted to Canada under an inflation-targeting monetary regime"--Federal Reserve Bank of New York web site.