Two country open economy (Corsetti & Pesenti, 2001)

[wessam]

@jpfeifer

Hi,
the fact that there are 8 eigenvalues larger than 1 for 5 forward-looking variables suggests a fundamental timing problem. Why are wages predetermined?

thanks for your reply.

The authors introduced nominal rigidities through one/period ahead nominal wage contracts, i.e. wages at time t are predetermined with contracts signed at time t-1.

I followed the UserGuide, in this case wages should be predetermined (t-1) in the labour demand equations, but with time t in the wage setting equation.