Quantitative Group Project ECON6008 International Money & Finance, Semester 1 2023 School of Economics, The University of Sydney Due date: Friday 2 June, 11:59pm ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó ó 1 The model (equations and variables) 1.1 The model in brief The model you will analyze is a simpliÖed version of the New-Keynesian small open economy (SOE) model in Justiniano and Preston (2010), which in turn is based on the model in Monacelli (2005) and Gali and Monacelli (2005). Compared to Justiniano and Prestonís model, our simpliÖed model assumes that the law of one price (LoP) holds for all imported retail goods and there is no price indexation for these imported goods. The model is also extended to include labor-supply shocks, which could be used as a proxy for the supply-side disruption of the COVID-19 pandemic. Aggregate áuctuations in our model model are driven by 7 exogenous shocks: risk premium, monetary policy (money supply), preference (consumer spending), labor supply, foreign ináation, foreign output, and foreign interest rate. The model can be derived from the ground up with micro-foundations, based on op timizing households, domestic Örms and importers, etc., resulting in a set of non-linear equations. We will instead work directly with the log-linearized equilibrium equa tions, listed below. 1.2 The log-linearized equations Consumption Euler-equation (the IS equation):