https://macropaperwarehouse.com/authors/alessandro-moro/Alessandro MoroHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/frank-fragmentation-in-the-nk-model/https://macropaperwarehouse.com/papers/frank-fragmentation-in-the-nk-model/<p>Moro and Nispi Landi develop FraNK, a multi-country New Keynesian model designed to study geoeconomic fragmentation — defined, following Aiyar et al. (2023), as a policy-driven reversal of economic integration guided by strategic considerations. The model extends Gali and Monacelli (2005) along three dimensions: it is multi-country rather than small-open-economy; it assumes incomplete international financial markets, relaxing perfect risk sharing; and it incorporates commodities as intermediate inputs in production, capturing both domestic and imported commodity sourcing. A fragmentation shock is modeled as a simultaneous increase in three tax rates imposed on rival countries: a tax on imports of final goods, a tax on imports of commodities, and a tax on the purchase of foreign bonds (capital controls).</p>