A graphical representation is offered based on a fairly standard formulation of an underlying comparative static model for applied undergraduate analysis. Contrary to standard practice the approach takes Walrasian equilibrium as its starting point and considers market failures that include nominal rigidities as special cases. It therefore builds intuition that centers on price rather than quantity adjustment following shocks. Beyond this, its advantages include that it offers comparative ease of representation of external shocks, which are particularly important in small open economies, it uses intuitive demand-supply market diagrams throughout and it provides the ability to set as clear targets for monetary policy the exchange rate, the CPI and the GDP price. Finally, it allows for forward expectations so that it offers useful insights for students into the economic consequences of financial shocks.
|Name||Economics Discussion Papers|