Monetary Policy in Open Versus Closed Economies in the Presence of Distortions

Released on by Kyu-Chul Jung
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  • Monetary Policy in Open Versus Closed Economies in the Presence of Distortions Book Detail

  • Author : Kyu-Chul Jung
  • Release Date : 2016
  • Publisher :
  • Genre :
  • Pages : 27
  • ISBN 13 :
  • File Size : 94,94 MB
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Monetary Policy in Open Versus Closed Economies in the Presence of Distortions by Kyu-Chul Jung PDF Summary

Book Description: This paper compares the monetary policy problem in open economies with that in closed economies. It is found that the monetary policy problems in open and closed economies are isomorphic even in the presence of distortions in a steady state and hence the optimal monetary policies have similar properties. On the other hand, the monetary policy maker in open economies has a distorted incentive to manipulate the terms-of-trade. Because of the additional distortion in open economies, there exist gains from international monetary policy cooperation even in the case of a unit intertemporal elasticity of substitution, in contrast to the literature that abstracts from distortions in a steady state. Also, it is found that in the presence of distortions inflation bias is decreasing in openness, which is line with empirical evidence. In addition, this paper presents a simple transformation so that methods in closed economy models are easily applicable to open-economy models.

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International Dimensions of Monetary Policy

International Dimensions of Monetary Policy

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United States monetary policy has traditionally been modeled under the assumption that the domestic economy is immune to international factors and exogenous sho