The international welfare effects of a country's monetary policy shocks have been controversial in the literature. While a unilateral monetary expansion increases the production efficiency in each country, it affects terms of trade in favor of one country against another depending on the...

A common finding in the international-economics literature is that the elasticity of substitution between domestically produced and imported goods is smaller in the short than in the long run. Despite this, most of today's commonly used macroeconomic models assume this elasticity to be constant....

The optimal escape from a liquidity trap involves generating private-sector expectations of a higher future price level and higher future inflation. This lowers the real interest rate and reduces the recession during the liquidity trap. The problem, emphasized by Krugman, is that central-bank...

This paper develops a model of inflation in an open economy. The model permits analysis of the susceptibility of open economies to permanent inflationary consequences arising from transitory foreign exchange shocks. Sources of structural vulnerability to such events are identified, and means of...

The Taylor rule has become the dominant model for academic evaluation of out-of-sample exchange rate predictability. Two versions of the Taylor rule model are the Taylor rule fundamentals model, where the variables that enter the Taylor rule are used to forecast exchange rate changes, and the...

In this paper we estimate an open economy New-Keynesian model to investigate the impact of unconventional monetary policies on the exchange rate, focusing on those adopted since the Global Financial Crisis in the euro area and in the United States. To this end we replace effective, short-term,...

The paper studies exchange rate implications of trend inflation within a two-country New Keynesian (NK) model under incomplete international financial markets. A NK Phillips curve generalized by trend inflation with a positive long-run mean implies an expectational difference equation of...

This paper examines how much the central bank should adjust the interest rate in response to real exchange rate fluctuations. The paper first demonstrates in a two-country Dynamic Stochastic General Equilibrium (DSGE) model, that the home bias in consumption is important to duplicate the...

For the academic audience, this paper presents the outcome of a well-identified, large change in the monetary policy rule from the lens of a standard New Keynesian model and asks whether the model properly captures the effects. For policymakers, it presents a cautionary tale of the dismal...