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The simple geometry of transmission and stabilization in closed and open economies

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Author Info
Giancarlo Corsetti
Paolo Pesenti

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Abstract

This paper provides an introduction to the recent literature on macroeconomic stabilization in closed and open economies. We present a stylized theoretical framework, and illustrate its main properties with the help of an intuitive graphical apparatus. Among the issues we discuss: optimal monetary policy and the welfare gains from macroeconomic stabilization; international transmission of real and monetary shocks and the role of exchange rate pass-through; the design of optimal exchange rate regimes and monetary coordination among interdependent economies.Classification-JEL: E31, E52, F42

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Paper provided by European University Institute in its series Economics Working Papers with number ECO2005/26.

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Date of creation: 2005
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Handle: RePEc:eui:euiwps:eco2005/26

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Keywords: optimal monetary policy nominal rigidities exchange rate pass-through international cooperation

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  1. Cedric Tille, 2002. "How valuable is exchange rate flexibility? Optimal monetary policy under sectoral shocks," Staff Reports 147, Federal Reserve Bank of New York. [Downloadable!]
  2. Lars E. O. Svensson, 2003. "Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 145-166, Fall. [Downloadable!] (restricted)
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  3. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39, pages 195-214, December. [Downloadable!] (restricted)
  4. Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Alan Sutherland, 2002. "Incomplete Pass-Through and the Welfare Effects of Exchange Rate Variability," Discussion Paper Series, Department of Economics 0212, Department of Economics, University of St. Andrews. [Downloadable!]
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  6. Cedric Tille, 1999. "The role of consumption substitutability in the international transmission of shocks," Staff Reports 67, Federal Reserve Bank of New York. [Downloadable!]
  7. Michael Woodford, 2001. "The Taylor Rule and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 91(2), pages 232-237, May. [Downloadable!] (restricted)
  8. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June. [Downloadable!] (restricted)
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  1. Rene Lalonde & Dirk Muir, 2007. "The Bank of Canada's Version of the Global Economy Model (BoC-GEM)," Technical Reports 98, Bank of Canada. [Downloadable!]
  2. Linda S. Goldberg & Cédric Tille, 2008. "Macroeconomic Interdependence and the International Role of the Dollar," NBER Working Papers 13820, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Paul R. Bergin & Giancarlo Corsetti, 2005. "Towards a Theory of Firm Entry and Stabilization Policy," NBER Working Papers 11821, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Linda Goldberg & Cedric Tille, 2006. "The internationalization of the dollar and trade balance adjustment," Staff Reports 255, Federal Reserve Bank of New York. [Downloadable!]
  5. Bastiaan Verhoef, 2006. "Pricing-to-market, sectoral shocks and gains from monetary cooperation," DNB Working Papers 110, Netherlands Central Bank, Research Department. [Downloadable!]
  6. Linda S. Goldberg & Cédric Tille, 2006. "The International Role of the Dollar and Trade Balance Adjustment," NBER Working Papers 12495, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Karlygash Kuralbayeva, 2007. "Inflation persistence: Implications for a design of monetary policy in a small open economy subject to external shocks," CEIS Research Paper 93, Tor Vergata University, CEIS. [Downloadable!]
  8. Enrique Martinez-Garcia, 2008. "Globalization and monetary policy: an introduction," Globalization and Monetary Policy Institute Working Paper 11, Federal Reserve Bank of Dallas. [Downloadable!]
  9. Corsetti, Giancarlo, 2006. "Openness and the Case for Flexible Exchange Rates," CEPR Discussion Papers 5612, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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