Monetary policy for an open economy: an alternative framework with optimizing agents and sticky prices

McCallum, Bennett T.

doi:10.1093/oxrep/16.4.74

Cited by 123 publications

(26 citation statements)

References 23 publications

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“…The following references may also be of interest to the reader: Betts and Devereux, 1996;Canzoneri and Henderson, 1986;Gal and Gertler, 1999;McCallum and Nelson, 2000;Taylor, 2001. Appendix. Welfare functions and subsidies for the Nash and cooperative equilibria Notation preliminaries: variables with upper bars (e.g., % Y t ) denote equilibrium values under flexible prices at home, for any given value of output and other macrovariables in the foreign country.…”

Section: For Further Readingmentioning

confidence: 99%

A simple framework for international monetary policy analysis

Clarida

Galı́

Gertler

2002

Journal of Monetary Economics

326

117

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Section: For Further Readingmentioning

confidence: 99%

A simple framework for international monetary policy analysis

Clarida

Galı́

Gertler

2002

Journal of Monetary Economics

326

117

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“…The model I describe here is related closely to, and is really a mix between, the models of Devereux et al (1999) and Obstfeld (2001). McCallum and Nelson (2000) make similar assumptions.…”

Section: å Imports As Intermediatesmentioning

confidence: 99%

The Responsiveness of Consumer Prices to Exchange Rates: A Synthesis Of Some New Open Economy Macro Models

Engel¹

2002

Manchester School

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General equilibrium optimizing models with sticky nominal prices allow us to revisit questions about optimal monetary policy in open economies. If nominal prices are set in producers' currencies, appropriate monetary policy can reproduce the allocations under £exible prices. If nominal prices are set in consumers' currencies, stable nominal exchange rates may be desirable. In this case, a nominal exchange rate ¢xed at the purchasing power parity level can have desirable consequences for risk sharing, and nominal exchange rate £exibility cannot deliver optimal relative price changes. However, evidence shows that pass-through may be greater to import prices than to consumer prices. If prices are ¢xed for consumers, but importerdistributors face pass-through, then monetary policy-makers face a trade-o¡ that might require some control of nominal exchange rates, but not purely ¢xed rates. " IntroductionThe`new open economy macroeconomics' is an exciting new development that revives Keynesian IS^LM style analysis, but within a framework of optimizing agents. The literature has the advantage that policy recommendations can be based explicitly on a criterion of maximum household welfare, instead of some ad hoc criterion. This new literature has some interesting initial results on optimal policy and exchange rate £exibility.I will examine some new open economy macroeconomic models under three separate assumptions about how nominal prices are set. In all cases, there are some nominal prices that I assume are set for one period. I shall examine static versions of the models, since I will be able to discuss the relevant issues in that simpli¢ed framework.I will ¢rst construct the model under nominal price £exibility, and then compare that model to the sticky price models. In the ¢rst sticky price model, prices are set in the currency of the producer. (This is the PCP model, for`producer-currency pricing'.) This means that there is full passthrough of nominal exchange rate changes to consumer prices. That is,

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“…Clarida et al (2001) document that open economy models are isomorphic to the closed economy models. Among others also see McCallum and Nelson (2000), Clarida et al (2002), Batini et al (2003), Dennis (2003), Leitemo and Söderström (2005), and D'Adamo (2011).…”

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confidence: 99%

Asymmetric Monetary Policy Rules for an Open Economy: Evidence from Canada and the UK

2016

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We present an analytical framework to examine the open economy monetary policy rule of a central bank under asymmetric preferences. The resulting policy rule is then empirically examined using quarterly data with regards to Canada, and the UK from 1983q1-2007q4. Our empirical investigation shows that the open economy policy rule receives support from the data and that the monetary policy makers in the UK and Canada have asymmetric preferences. Robustness checks based on model calibration provide support for the suggested policy rule.

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Monetary policy for an open economy: an alternative framework with optimizing agents and sticky prices

Cited by 123 publications

References 23 publications

A simple framework for international monetary policy analysis

A simple framework for international monetary policy analysis

The Responsiveness of Consumer Prices to Exchange Rates: A Synthesis Of Some New Open Economy Macro Models

Asymmetric Monetary Policy Rules for an Open Economy: Evidence from Canada and the UK

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