Recent data show substantial increases in the size of gross external asset and liabilitypositions. The implications of these developments for optimal conduct of monetarypolicy are analyzed in a standard open economy model which is augmented to allowfor endogenous portfolio choice. The model...

Historically, the world payments system has been dominated by a single currency accepted in the exchange of goods and assets among countries. In recent decades, the US dollar has played this role. The dollar acts as a 'vehicle currency' in the sense that agents in non-dollar economies will...

Monetary rules may have a large effect on the outcome of trade wars if central banks target the CPI inflation rate or more generally changes in the relative price of traded goods. We lay out a two-country open-economy model with sticky prices where countries engage in trade wars. In the presence...

While in principle, international payments could be carried out using any currency or set of currencies, in practice, the US dollar is predominant in international trade and financial flows. The dollar acts as a `vehicle currency' in the sense that agents in non-dollar economies will generally...