We explore the implications of current account adjustment for monetary policy within a simple two country SGE model. Our framework nests Obstfeld and Rogoff's (2005) static model of exchange rate responsiveness to current account reversals. It extends this approach by endogenizing the dynamic...

We develop a model in which innovations in an economy's growth potential are an important driving force of the business cycle. The frame- work shares the emphasis of the recent “new shock” literature on revisions of beliefs about the future as a source of fluctuations, but differs by tieing...