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Teaching New Keynesian Open Economy Macroeconomics at the Intermediate Level

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  • Bofinger, Peter
  • Mayer, Eric
  • Wollmershäuser, Timo

Abstract

For the open economy the workhorse model in intermediate textbooks still is the Mundell-Fleming model, which basically extends the IS-LM model to open economy problems. The purpose of this paper is to present a simple New Keynesian model of the open economy, that introduces open economy considerations into the closed economy consensus version and that still allows for a simple and comprehensible analytical and graphical treatment. Above all, our model provides an efficient tool kit for the discussion of the costs and benefits of fixed and flexible exchange rates, which also was at the core of the Mundell-Fleming model.

Suggested Citation

  • Bofinger, Peter & Mayer, Eric & Wollmershäuser, Timo, 2006. "Teaching New Keynesian Open Economy Macroeconomics at the Intermediate Level," W.E.P. - Würzburg Economic Papers 66, University of Würzburg, Chair for Monetary Policy and International Economics.
  • Handle: RePEc:zbw:wuewep:66
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    References listed on IDEAS

    as
    1. Akila Weerapana, 2003. "Intermediate Macroeconomics without the IS-LM Model," The Journal of Economic Education, Taylor & Francis Journals, vol. 34(3), pages 241-262, January.
    2. Taylor, John B., 1999. "The robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the European central bank," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 655-679, June.
    3. McCallum, Bennett T & Nelson, Edward, 2000. "Monetary Policy for an Open Economy: An Alternative Framework with Optimizing Agents and Sticky Prices," Oxford Review of Economic Policy, Oxford University Press, vol. 16(4), pages 74-91, Winter.
    4. Flood, Robert P. & Rose, Andrew K., 1995. "Fixing exchange rates A virtual quest for fundamentals," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 3-37, August.
    5. Bofinger, Peter & Mayer, Eric & Wollmershäuser, Timo & Hülsewig, Oliver, 2003. "The BMW model: A new framework for teaching monetary macroeconomics in closed and open economies," W.E.P. - Würzburg Economic Papers 34, University of Würzburg, Chair for Monetary Policy and International Economics.
    6. John B. Taylor, 1999. "Introduction to "Monetary Policy Rules"," NBER Chapters,in: Monetary Policy Rules, pages 1-14 National Bureau of Economic Research, Inc.
    7. Lars E.O. Svensson & Michael Woodford, 2004. "Implementing Optimal Policy through Inflation-Forecast Targeting," NBER Chapters,in: The Inflation-Targeting Debate, pages 19-92 National Bureau of Economic Research, Inc.
    8. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    9. Glenn Rudebusch & Lars E.O. Svensson, 1999. "Policy Rules for Inflation Targeting," NBER Chapters,in: Monetary Policy Rules, pages 203-262 National Bureau of Economic Research, Inc.
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    11. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    12. Peter Bofinger & Eric Mayer & Timo Wollmershäuser, 2006. "The BMW Model: A New Framework for Teaching Monetary Economics," The Journal of Economic Education, Taylor & Francis Journals, vol. 37(1), pages 98-117, January.
    13. Baxter, Marianne & Stockman, Alan C., 1989. "Business cycles and the exchange-rate regime : Some international evidence," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 377-400, May.
    14. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters,in: Monetary Policy Rules, pages 319-348 National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Séverine Menguy, 2009. "Heterogeneity in Inflation Persistence and Monetary Policy in a Monetary Union," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 52(2), pages 121-141.
    2. Pasquale Foresti, 2015. "Monetary and debt-concerned fiscal policies interaction in monetary unions," International Economics and Economic Policy, Springer, vol. 12(4), pages 541-552, October.
    3. Bernd Hayo & Britta Niehof, 2013. "Studying International Spillovers in a New Keynesian Continuous Time Framework with Financial Markets," MAGKS Papers on Economics 201342, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    4. Manfred Gärtner & Florian Jung, 2010. "Clothes for the Emperor or Can Graduate Schools Learn From Undergraduate Macroeconomics?," University of St. Gallen Department of Economics working paper series 2010 2010-19, Department of Economics, University of St. Gallen.
    5. Hans-Werner Wohltmann & Alexander Totzek, 2012. "Barro-Gordon Revisited: Reputational Equilibria in a New Keynesian Model," Credit and Capital Markets, Credit and Capital Markets, vol. 45(1), pages 27-50.
    6. Offick, Sven & Wohltmann, Hans-Werner, 2014. "Bernanke/Blinder revisited - The New Keynesian model with credit channel," Economics Working Papers 2014-10, Christian-Albrechts-University of Kiel, Department of Economics.

    More about this item

    Keywords

    open economy; inflation targeting; monetary policy rules; New Keynesian macroeconomics;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General

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