The Australian dollar is known as a commodity currency because it is sensitive to fluctuations of commodity prices. Although the structure of Australian production has historically moved from the primary commodities to manufacturing and services, market expectations of the currency are still...

The empirical VAR literature on the monetary transmission mechanism in closed economies has been successful in providing evidence with which theoretical models of the monetary transmission mechanism are now confronted. The empirical VAR literature on the monetary transmission mechanism in open...

This chapter studies optimal monetary stabilization policy in interdependent open economies, by proposing a unified analytical framework systematizing the existing literature. In the model, the combination of complete exchange-rate pass-through (producer currency pricing) and frictionless asset...

Exchange rate movements affect the economy through changes in net exports, i.e. the trade channel, and through valuation changes in assets and liabilities denominated in foreign currencies, i.e. the financial channel. In this paper, I investigate the macroeconomic and financial effects of U.S....

We develop a two-country New Keynesian model with sticky local currency pricing,distribution costs and a demand elasticity increasing with the relative price. These features help to reduce the exchange rate pass-through to import price at the border and down the chain towards consumption price,...

We solve a canonical, estimated, medium-sized, open-economy New Keynesian model, cast it into a small-scale population vector autoregression, and assess whether best-practice structural identifications detect textbook "overshooting" after a monetary policy hike-i.e., an instant real appreciation...

We study the effects of expansionary fiscal shocks in a two-country DSGE model with perpetual youth. We consider two alternative financing regimes, monetary financing and debt financing, and find that a money-financed fiscal stimulus is more expansionary on output and inflation. We investigate...

The paper investigates exchange rate cycles and their relationship to the business cycle in 7 major emerging market economies. We document the presence of periodic cycles in nominal US-dollar exchange rates and show that these are closely aligned with cycle frequencies in real output. Joint...

Understanding the transmission channels of shocks is critical for successful policy response. This paper develops a dynamic general equilibrium model to assess the relative importance of the interest rate, the exchange rate and the credit channels in transmitting shocks in an open economy. The...

In this paper we highlight a new channel through which dollar fluctuations can become a self-fulfilling pro-cyclical force. We call this mechanism "Imperial Circle" as it makes the dollar the dominant macroeconomic variable in the context of the current international monetary system. At the core...