SECTORAL AND MACROECONOMIC EFFECTS IN A TWO GOOD OPEN ECONOMY WITH AN INTERMEDIATE INPUT*

A model of an open economy, in which two goods, a tradeable and a non-tradeable, are distinguished, is constructed. There is also an intermediate input (oil) which is both produced domestically and traded, and which is used as an input in the traded sector. There are two assets, money and internationally traded bonds. In the model the effects of various changes, including an increase in the money supply, and increases in both the world price of, and the domestic output of, oil, are analysed.