ABSTRACT
In this chapter 1 we motivate and analyze a disequilibrium monetary growth model of a small open economy. The model consists of the dynamic interaction of a real sector and a nominal one. The dynamics of the real sector are determined by employment and labor intensity dynamics and an inventory dynamics. In the nominal part of the model price and inflationary expectations dynamics interact with dynamics of the foreign exchange rate and expectations of exchange rate depreciation. The resulting model is expressed as an 8D dynamical system which incorporates sluggish price and quantity adjustments, allows for fluctuations in both capital and labor utilization and allows for international trade in goods as well as financial assets.
