Microfoundations of the euro´s effect on euro area trade hinge on the timing, thespeed and the size of adjustment in trade costs. We estimate timing, speed and sizeof adjustment in trade costs for sectoral trade data. Our approach allows for sectorspecific impacts of trade costs on sectoral...

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 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...

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...

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...

Past empirical research on monetary policy in open economies has found evidence of the ’delayed overshooting’, the ’forward discount’ and the ’exchange rate’ puzzles. We revisit the effects of monetary policy on exchange rates by applying Uhlig’s (2005) identification procedure that...

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 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...