Dear, Pfeifer,
McCallum and Nelson ( Monetary Policy for an Open Economy: An Alternative Framework with Optimizing Agents and Sticky Prices | NBER ) proposed a new Keynesian open-economy model in which imported goods are only used as inputs into the production of the domestic good and households consumer only the domistically produced good. The volume of output of an intermediate product in their model depends on two factors: imports and labor. Why does the Phillips curve in this model have the same shape as in the model in which the volume of output depends on only one factor - labor resources.
Thank you,
Leonid.
I don’t know the answer. One would have the check the full math behind it. It is not given in the paper.