A Simple Framework for International Monetary Policy Analysis

By Richard Clarida, J. Gaĺı, M. Gertler. 2002

788 citations recorded by the source corpus.

We study the international monetary policy design problem within an optimizing two-country sticky price model, where each country faces a short run tradeoff between output and inflation. The model is sufficiently tractable to solve analytically. We find that in the Nash equilibrium, the policy problem for each central bank is isomorphic to the one it would face if it were a closed economy. Gains from cooperation arise, however, that stem from the impact of foreign economic activity on the domestic marginal cost of production. While under Nash central banks need only adjust the interest rate in response to domestic inflation, under cooperation they should respond to foreign inflation as well. In either scenario, flexible exchange rates are desirable.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/67beda3afb82637c7c7517bb3436f880ac39c446

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Citations in the corpus

Inflation Targeting: What Have We Learned? (2009, background): “First, Clarida et al. (2002) show that in a simple new Keynesian model of the open economy, it is domestic price inflation, not CPI inflation, that should be stabilized if the objective is to maximize the welfare of the representative”
The Need for International Policy Coordination: What's Old, What's New, What's Yet to Come? (2005, neutral): “Other contributions to this emerging literature include: Benigno (2001), Benigno and Benigno (2001, 2003), Cooley and Quadrini (2002), Corsetti and Pesenti (2002), Clarida et al. (2002), Kollmann (2002), Pappa (2002), Sutherland (2002), Tchakarov (2002) and Tille (2002a). 4 These characteristics are”
The International Price System (2015, background): “With PCP the optimal policy is to target producer prices (Clarida et al. (2002)) while with LCP there is an argument for targeting consumer prices (Engel (2011)).”
A new comparative approach to macroeconomic modeling and policy analysis (2012, background): “Clarida et al (1999), Rotemberg and Woodford (1997), Fuhrer and Moore (1995), McCallum and Nelson (1999), Coenen and Wieland (2003), etc.”
The State of New Keynesian Economics: A Partial Assessment (2018, background): “…allowances for staggered wage setting (Erceg et al. 2000), some backward-looking price setting (Steinsson 2003), open economy considerations (Clarida et al. 2002; Galí and Monacelli 2005), deviations from rational expectations (Evans and Honkapohja 2003; Woodford 2010), labor market…”
Price Stability with Imperfect Financial Integration (2001, neutral): “By using condition (18) into CA and equation (16), we can reduce the equations describing the flexible-price incomplete market allocation into a dynamic system as follows”
How Far are We from the Slippery Slope? The Laffer Curve Revisited (2009, neutral): “e, k̂t = ηkkk̂t−1 + πτ̆ t + ντ̆ n t (11) T̂t = ηTkk̂t−1 + μτ̆ t + ωτ̆ n t (12)”
Optimal Monetary Policy in a Small Open Economy with Home Bias (2008, background): “See for instance Obsteld and Rogo¤ (1996), Benigno and Benigno (2003), McCallum and Nelson (2000), Corsetti and Pesenti (2001, 2003), Kollman (2002), Devereux and Engel (2003), Clarida, Galí, and Gertler (2002), Pappa (2003).”
Monetary Policy for Inattentive Economies (2005, neutral): “Using equations (8)-(11), one can derive a reduced form for the price level as a linear function of the target money supply, ˆ , variables determined before , and shocks at (the monetary control error and the unexpected component of the productivity and markup shocks),3 Since the shocks are unforec”
Openness and Inflation (2010, neutral): “(5)This is also discussed at length in Clarida et al. (1999). King and Wolman (2004) provide a critique”