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Monetary policy, determinacy, and learnability in a two-block world economy

  • James B. Bullard
  • Eric Schaling

We study how determinacy and learnability of worldwide rational expectations equilibrium may be affected by monetary policy in a simple, two country, New Keynesian framework under both fixed and flexible exchange rates. 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.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2006-038.

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Date of creation: 2006
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Handle: RePEc:fip:fedlwp:2006-038
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  19. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
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  24. Monacelli, Tommaso, 2003. "Monetary policy in a low pass-through environment," Working Paper Series 0227, European Central Bank.
  25. Luis-Felipe Zanna, 2004. "PPP rules, macroeconomic (In)stability and learning," International Finance Discussion Papers 814, Board of Governors of the Federal Reserve System (U.S.).
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