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Olivier Blanchard has made the point that macroeconomic modelling should become more pluralistic: ‘we need different types of macroeconomic models for different purposes (…) No model can be all things to all people’ (Blanchard 2018). Among the five classes of models that Blanchard envisages, there should be the so-called ‘toy models’: “They allow for a quick first pass at some question, and present the essence of the answer from a more complicated model or from a class of models. For the researcher, they may come before writing a more elaborate model, or after, once the elaborate model has been worked out” (Blanchard 2018).
The model presented in this paper tries to achieve the goals mentioned above. It offers a ‘starting point’ for ‘more elaborate’ open economy SFC models. It displays a simple description of the dynamics of the exchange rates determination which is suitable for didactic purposes. The level of complexity of the model is comparable with the Mundell-Fleming model that still dominates the undergraduate university textbooks of International Economics. However, the ‘theoretical massage’ of the OPENSIME is consistent with the Harrodian open economy tradition which identifies in the current account position the main, long-term (fundamental) driver of the exchange rate mechanism (Lavoie 2015). For the same reasons, the simplicity of the model can be valuable in policymaking.

Link to Review of Political Economy