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Monetary policy, determinacy, and learnability in the open economy Author info | Abstract | Publisher info | Download info | Related research | Statistics James Bullard () (Research Division, Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, MO 63166-0442, United States. )
Eric Schaling () (Department of Economics University of Johannesburg, and CentER for Economic Research, Tilburg University. Address: P.O. Box 524, 2006, Auckland Park, Johannesburg, Republic of South Africa. )
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We study how determinacy and learnability of global rational expectations equilibrium may be affected by monetary policy in a simple, two country, New Keynesian framework. The two blocks may be viewed as the U.S. and Europe, or as regions within the euro zone. We seek to understand how monetary policy choices may interact across borders to help or hinder the creation of a unique rational expectations equilibrium worldwide which can be learned by market participants. We study cases in which optimal policies are being pursued country by country as well as some forms of cooperation. We find that open economy considerations may alter conditions for determinacy and learnability relative to closed economy analyses, and that new concerns can arise in the analysis of classic topics such as the desirability of exchange rate targeting and monetary policy cooperation. JEL Classification: E52; F33.
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Paper provided by European Central Bank in its series Working Paper Series with number
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Length: 60 pages
Date of creation: Apr 2006Date of revision:
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Keywords: Indeterminacy ; monetary policy rules ; new open economy macroeconomics ; international policy coordination. ; Other versions of this item:
Paper Eric Schaling & James Bullard, 2005.
"Monetary Policy, Determinacy, and Learnability in the Open Economy ,"
Computing in Economics and Finance 2005
362, Society for Computational Economics.
Bullard, James & Schaling, Eric, 2005.
"Monetary policy, determinancy, and learnability in the open economy ,"
Discussion Paper
116, Tilburg University, Center for Economic Research.
[Downloadable!] This paper has been announced in the following NEP Reports :
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Maurice Obstfeld and Kenneth Rogoff., 1995.
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"Monetary Policy and Exchange Rate Volatility in a Small Open Economy ,"
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Jordi Galí & Tommaso Monacelli, 2004.
"Monetary Policy and Exchange Rate Volatility in a Small Open Economy ,"
Economics Working Papers
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CEPR Discussion Papers
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"Closing Small Open Economy Models ,"
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Journal of International Economics ,
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"Discretion versus policy rules in practice ,"
Carnegie-Rochester Conference Series on Public Policy ,
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"The non-linear Phillips curve and inflation forecast targeting ,"
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Journal of Monetary Economics ,
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M.B. Devereux & Ch. Engel, 2003.
"Exchange Rate Pass-Through, Exchange Rate Volatility, and ExchangeRate Disconnect ,"
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Journal of Monetary Economics ,
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"Expectations and the Stability Problem for Optimal Monetary Policies ,"
Review of Economic Studies ,
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Honkapohja, Seppo & Evans, George W., 2000.
"Expectations and the stability problem for optimal monetary policies ,"
Discussion Paper Series 1: Economic Studies
2000,10, Deutsche Bundesbank, Research Centre.
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"Expectations and the Stability Problem for Optimal Monetary Policies ,"
CEPR Discussion Papers
2805, C.E.P.R. Discussion Papers.
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"Expectations and the Stability Problem for Optimal Monetary Policies ,"
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"Expectations and the Stability Problem for Optimal Monetary Policies ,"
University of Helsinki, Department of Economics
481, Department of Economics.
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"Do the ECB and the fed really need to cooperate? Optimal monetary policy in a two-country world ,"
Journal of Monetary Economics ,
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"Inflation targeting as a monetary policy rule ,"
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"Inflation Targeting as a Monetary Policy Rule ,"
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646, Stockholm - International Economic Studies.
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"Learning about Monetary Policy Rules when Long-Horizon Expectations Matter ,"
MPRA Paper
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"Implementing Optimal Policy through Inflation-Forecast Targeting ,"
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Svensson, Lars E O & Woodford, Michael, 2004.
"Implementing Optimal Policy Through Inflation-Forecast Targeting ,"
CEPR Discussion Papers
4229, C.E.P.R. Discussion Papers.
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in: The Inflation-Targeting Debate, pages 19-92
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"Does trade openness matter for aggregate instability? ,"
Journal of Economic Dynamics and Control ,
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"Endogenous Currency of Price Setting in a Dynamic Open Economy Model ,"
NBER Working Papers
8559, National Bureau of Economic Research, Inc.
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
James B. Bullard & Aarti Singh, 2007.
"Worldwide macroeconomic stability and monetary policy rules ,"
Working Papers
2006-040, Federal Reserve Bank of St. Louis.
[Downloadable!]
Other versions: Bask, Mikael, 2007.
"Instrument rules in monetary policy under heterogeneity in currency trade ,"
Research Discussion Papers
22/2007, Bank of Finland.
[Downloadable!]
Other versions: Yu-chin Chen & Pisut Kulthanavit, 2007.
"Adaptive Learning and Monetary Policy: Lessons from Japan ,"
Working Papers
UWEC-2008-12, University of Washington, Department of Economics.
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Eijffinger, Sylvester C W & Schaling, Eric & Tesfaselassie, Mewael F., 2006.
"Learning About the Term Structure and Optimal Rules for Inflation Targeting ,"
CEPR Discussion Papers
5896, C.E.P.R. Discussion Papers.
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Other versions:
Tesfaselassie, Mewael F. & Schaling, Eric & Eijffinger, Sylvester, 2006.
"Learning about the term structure and optimal rules for inflation targeting ,"
Discussion Paper
88, Tilburg University, Center for Economic Research.
[Downloadable!] Tesfaselassie, M.F. & Schaling, E. & Eijffinger, S.C.W., 2006.
"Learning About the Term Structure and Optimal Rules for Inflation Targeting ,"
Research Paper
ERS-2006-058-F&A Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
[Downloadable!] Luis Gonzalo Llosa & Vicente Tuesta, 2006.
"Determinacy and Learnability of Monetary Policy Rules in Small Open Economies ,"
RES Working Papers
4479, Inter-American Development Bank, Research Department.
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Other versions: Bask, Mikael, 2007.
"Optimal monetary policy under heterogeneity in currency trade ,"
Research Discussion Papers
21/2007, Bank of Finland.
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Bask, Mikael & Selander, Carina, 2007.
"Robust Taylor rules in an open economy with heterogeneous expectations and least squares learning ,"
Research Discussion Papers
6/2007, Bank of Finland.
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