This study analyzes a two-country dynamic general equilibrium model with nominal rigidities,monopolistic competition and producer currency pricing. A quadratic approximation to the utility ofthe consumers is derived and assumed as the policy objective function of the policymakers.It is shown...

In this paper, the following question is posed: Can the New KeynesianOpen Economy Model by Galí and Monacelli (2005b) explain “Six MajorPuzzles in International Macroeconomics”, as documented in Obstfeldand Rogoff (2000b)?The model features a small open economy with complete markets,...

This paper studies the optimal design of monetary policy in an optimizing two-country sticky price model. We suppose that the production sequence of final consumption goods stretches across both contries and is associated with vertical trade. Prices of final consumption goods are sticky in the...

The U.S. dollar holds a dominant place in the invoicing of international trade, along two complementary dimensions. First, most U.S. exports and imports invoiced in dollars. Second, trade flows that donot involve the United States are also substantially invoiced in dollars, an aspect that has...

This paper analyzes the evolution of the degree of global cyclicalinterdependence over the period 1960-2005. We categorize the 106 countries in oursample into three groups—industrial countries, emerging markets, and other developingeconomies. Using a dynamic factor model, we then decompose...

This paper provides a stylized choice-thoretic model to analyze optimal monetary policies among interdependent economies. In response to marcoeconomic shocks, policymakers strike a balance between two objectives. The first is to stabilize marginal costs and markups to offset the distortions...

We use a two-country model with a central bank maximizing union-wide welfareand two fiscal authorities minimizing comparable, but slightly differentcountry-wide losses. We analyze the rivalry between the three authorities inseven static games. Comparing a homogeneous with a heterogeneous...

Global liquidity expansion has been very dynamic since 2001. Contrary to conventionalwisdom, high money growth rates have not coincided with a concurrent rise in goodsprices. At the same time, however, asset prices have increased sharply, significantlyoutpacing the subdued development in...

This paper examines monetary policy in a currency union whose member countries exhibitheterogeneous rates of limited asset markets participation (LAMP). As a result risksharing among member countries is imperfect and the monetary transmission mechanismcan dier across countries. In the limit the...

This paper extends and modifies the Keynesian critique of inflation targetingwith reference to stabilisation policy in emerging market economies. The IMF‘basic monetary programming framework’ for developing countries usesgovernment borrowing and the exchange rate as policy instruments in...