International dimensions of optimal monetary policy

Corsetti, Giancarlo; Pesenti, Paolo

doi:10.1016/j.jmoneco.2004.06.002

Cited by 427 publications

(365 citation statements)

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“…A far from complete list for further references includes Clarida, Gali, and Gertler (2002), Corsetti and Pesenti (2005), and Woodford (2007). Note 3.…”

Section: Resultsmentioning

confidence: 99%

International Transmission of U.S. Real and Nominal Shocks

Paudel¹

2011

IJEF

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The real and nominal shocks in the U.S. are identified by using long-run implications of an open economy stochastic macroeconomic model, and the effects of these shocks are observed in real GDP, effective exchange rates, and the prices for the U.S. relative to each of six other G-7 countries. While Blanchard and Quah's long-run identification strategy is used to identify the shocks, short-run implication of the model are also exploited, as a prima facie evidence, by applying appropriate sign restrictions in the VAR estimation. Consistent with the model's predictions, a positive supply shock results in an increase in relative U.S. real GDP and a real depreciation of U.S. currency whereas nominal shocks in the U.S. lead to an increase in relative U.S. real GDP and relative U.S. prices. The application of short-run dynamics with proper sign restrictions into the VAR estimation produces exchange rate overshooting following the U.S. real shocks.

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“…A far from complete list for further references includes Clarida, Gali, and Gertler (2002), Corsetti and Pesenti (2005), and Woodford (2007). Note 3.…”

Section: Resultsmentioning

confidence: 99%

International Transmission of U.S. Real and Nominal Shocks

Paudel¹

2011

IJEF

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“…In earlier studies, Corsetti and Pesenti (2001;2005) and Tille (2001) have discussed the relative strengths of the aggregate demand and terms of trade channels in open economy models. Both found that the terms of trade channel tends to dominate the aggregate demand channel, except in very large countries, implying that the deflationary bias prevails in the circumstances of an open economy.…”

Section: Introductionmentioning

confidence: 99%

Nontraded Goods and Deflationary Bias in a New Keynesian Open Economy Model

2013

IJEF

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This paper develops a New Keynesian open economy model that embeds nontraded goods and produces multiple discretionary equilibria arising in the form of expectations traps. In contrast to the results in previous studies, we find the presence of nontraded goods narrows the region for a deflationary monetary surprise, suggesting that it is critically important for central banks to control inflation expectations in open economies.

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“…The main issues addressed within the NOEM literature are the ones related to international macroeconomic interdependence among countries, such as the role of the exchange rate in the international transmission mechanism and the relevance of the exchange rate regime to the adjustment of international relative prices. Corsetti and Pesenti (2005) discuss the extent to which the international dimension matters in the design of optimal stabilization rules. Corsetti (2006) additionally raise the issue of the relation between the magnitude of the economy's openness and the international dimension of monetary policies, arguing that, when local currency pricing is assumed, more inward looking optimal policies are prescribed in economies relatively closed to trade (with home bias); conversely, optimal policy is less inward looking, that is, there exists an international dimension in monetary policy, when home bias decrease.…”

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confidence: 99%