Abstract
Obstfeld and Rogoff (1995) endeavour to investigate the international welfare spillovers with monopolistic competition and sticky output prices, yet in a unified exchange rate system. This paper applies their framework to the regime of dual exchange markets, generating plenty of results of policies. The particular contribution of this paper to the welfare effects of country sizes on policy lies in the cases of numerical simulations. The discussions of spillover effects, the current account dynamics, and imperfect competition to the separating exchange markets fill in the gaps on the literature. Then it takes a further step on open economy macroeconomics.
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