The Framework:
I have a basic small open economy model in which two types of exchange rate arrangements can be applied: exchange rate peg and floating exchange rate.
My question is:
How can I calculate a welfare measure in terms of the corresponding steady state consumption equivalent for each of the shocks I have (productivity, foreign demand and foreign prices) and over all?
I know that utility can be approximated around the efficient steady state by a quadratic approximation of u(c,m,l). Further notice that I do not want to perform an analysis of optimal monetary policy, rather it is interesting to me to compare the welfare properties of simple rules that have been exposed to much discussion. My aim is to have the .mod files where I run my models and to have an extarnal .m file that calculates the Welfare (at best always relative to the flexible ER case.)
Any help is appreciated.
Best,
Philipp