How should monetary policy respond to a commodity price shock in a resource-rich economy? We study optimal monetary policy in a simple model of an oil exporting economy to provide a first answer to this question. The central bank faces a trade-off between the stabilization of domestic inflation...

3) In light of the model, is the rapid decline in the Fed Funds Rate in 2007-2008 justified by the recent turmoil in financial markets?

The empirical DSGE literature pays surprisingly little attention to the behavior of the monetary authority. Alternative policy rule specifications abound but their relative merit is rarely discussed. We provide some of this discussion by comparing the fit of a large set of interest rate rules...

We explore the implications of current account adjustment for monetary policy within a simple two-country DSGE model. Our framework nests Obstfeld and Rogoff’s (2005) static model of exchange rate responsiveness to current account reversals. It extends this approach by endogenizing the dynamic...

One of the most striking features of the period before the Great Recession of 2007-2009 is the strong positive correlation between house price appreciation and current account deficits in countries that have subsequently experienced the highest degree of financial turmoil. A progressive...

Structural reforms that increase competition in product and labor markets may have large effects on the long-run level of output. We find that, in a medium scale DSGE model, a 10 percent reduction in product and labor markups increases output by nearly 7 percent after 5 years. The short-run...

While the asset price collapse of the late 80s in Japan might explain the disinflationary pressures that followed, it is hard to attribute the persistent deflation that the country has faced since the mid 90s to that initial shock. We argue that a failure to account for demographic trends when...

This paper develops a tractable two-country model with life-cycle structure to investigate analytically and quantitatively three potential determinants of the U.S. external imbalances in the last three decades: productivity growth, demographic factors, and fiscal policy. The results suggest that...