New Open Economy Macroeconomics (NOEM) is shaped by the experience of advanced and financially integrated small open economies. Its foundational stylised facts are well established: domestic prices adjust slowly; foreign exchange is abundant and freely traded; capital markets are deep; and independent central banks influence inflation expectations. In these settings, domestic marginal cost is the anchor of the Phillips curve, inflation is largely home-grown, monetary policy has strong traction, and the exchange rate serves as a shock absorber with moderate pass-through.
These assumptions travel poorly to small open developing economies. In these settings, prices tend to be flexible rather than sticky, and import prices and exchange-rate movements pass rapidly into domestic inflation. Further, production relies heavily on imported capital goods, so marginal cost is externally determined. As a result, nominal depreciation raises costs and inflation instead of competitiveness, and the exchange rate acts as a shock transmitter rather than an absorber. Partially dollarised balance sheets reinforce this dynamic and contribute to persistent trend depreciation. Two implications follow. First, monetary policy loses traction: the central bank has limited influence over inflation expectations when external prices dominate domestic marginal cost. Second, fiscal policy is constrained by foreign-exchange availability under fixed pegs and the need to stabilise the exchange rate under pure floats.
Building on these stylised facts, my research develops a New Structural Open Economy Macroeconomics (NSOEM). The framework embeds the external sector, fiscal operations, and the banking system within a unified stock–flow accounting structure.
New Structural Open Economy Macroeconomics:
Traditional Structuralist Macroeconomics long emphasised import dependence, foreign exchange constraints, and supply-side bottlenecks. Yet its focus on real-sector relationships often overlooked the roles of money, banking, and the stock dimensions of the external constraint, favouring flow-based analyses instead. The Monetary Approach to the Balance of Payments (MABP), by contrast, takes the opposite view—treating external imbalances as the result of monetary disequilibrium. However, money demand functions are notoriously unstable, and this line of research pays scant attention to the real sector and institutional structure of developing economies. Both traditions also remain detached from contemporary debates—such as the flattening of the Phillips Curve—or from modern modelling innovations grounded in microfoundations.
My work also shares analytical affinities with other traditions. Post-Keynesian and Kaleckian frameworks highlight demand-led growth, financial fragility, and income distribution, while recent research on dominant currency pricing underscores that international trade is largely invoiced in foreign currency. Each recognises the importance of external constraint, but none systematically integrates foreign exchange, banking, and fiscal operations within a stock–flow consistent framework. More importantly, they do not explore how the inadequate supply of foreign exchange reshapes core macroeconomic relationships—business cycle dynamics, output-gap measurement, inflation targeting, or the slope of the Phillips Curve.