Abstract for: Open Macroeconomies as A Closed Economic System - SD Macroeconomic Modeling Completed -
This paper completes the series of macroeconomic modeling that tries to model macroeconomic dynamics on the basis of the principle of accounting system dynamics developed by the author. Money supply and creation processes of deposits were modeled in the first paper, while the second paper built dynamic determination processes of GDP, interest rate and price level. In the third paper, these two separate models were integrated to present a complete macroeconomic dynamic model consisting of real and monetary sectors. The fourth paper presented a model of a dynamic determination of foreign exchange rate in an open macroeconomy in which goods and services are freely traded and financial capital flows efficiently for higher returns. This fifth and final paper in the series tries to expand the integrated model in the third paper to the open macroeconomies according to the framework developed in the forth paper. It provides a complete generic model of open macroeconomies as a closed system, consisting of two economies, a foreign economy as an image of domestic economy. As a demonstration of its analytical capability, a case of credit crunch is examined to show how domestic macroeconomic behaviors influence foreign macroeconomy through trade and financial capital flows.