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

  • Giancarlo Corsetti
  • Paolo Pesenti

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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