Globalization and Monetary Policy: An Introduction

Abstract

Greater openness has become an almost universal feature of modern, developed economies. This paper develops a workhorse international model, and explores the role of standard monetary policy rules applied to an open economy. For this purpose, I build a two-country DSGE model with monopolistic competition, sticky prices, and pricing-to-market. I also derive the steady state and a log-linear approximation of the equilibrium conditions. The paper provides a lengthy explanation of the steps required to derive this benchmark model, and a discussion of: (a) how to account for certain well-known anomalies in the international literature, and (b) how to start 'thinking' about monetary policy in this environment.

Fiscal Stabilization With Partial Exchange Rate Pass‐through

“…7 7 See Woodford (2003) for an analysis of optimal fiscal policy in the closed‐economy case, and Martinez‐Garcia (2008) for the open‐economy one. …”