Get International Dimensions of Monetary Policy (National Bureau PDF

By Jordi Galí, Mark Gertler

ISBN-10: 0226278867

ISBN-13: 9780226278865

Usa financial coverage has generally been modeled lower than the idea that the family economic system is proof against foreign elements and exogenous shocks. Such an assumption is more and more unrealistic within the age of built-in capital markets, tightened hyperlinks among nationwide economies, and diminished buying and selling expenses. foreign Dimensions of financial coverage brings jointly clean examine to handle the repercussions of the ongoing evolution towards globalization for the behavior of financial policy. In this accomplished publication, the authors study the genuine and strength results of elevated openness and publicity to overseas financial dynamics from a number of views. Their findings display that primary banks proceed to persuade decisively household fiscal outcomes—even inflation—suggesting that overseas elements could have a constrained position in nationwide functionality. overseas Dimensions of economic coverage will cleared the path in interpreting financial coverage measures in advanced economies.

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Base money is assumed to be a one-period liability of the central bank that promises a riskless nominal return (in units of the domestic currency) of i tm between periods t and t ϩ 1; the rate i tm is an administered rate (rather than market-determined), and the choice of it is an additional potential instrument of policy for the central bank. 32) The flow budget constraint of a household is then of the form33 m PtCt ϩ Mt ϩ Et [Qt,tϩ1Atϩ1] Յ (1 ϩ i tϪ1 )MtϪ1 ϩ At ϩ PtYt Ϫ Tt , where At denotes the state-contingent nominal value (in units of the home currency) of the household’s portfolio of nonmonetary financial claims carried into period t and Tt represents net nominal tax collections by the home government.

However, this result does not depend on the hypothesis of complete international financial integration. In fact, under the preference specification assumed by CGG, an identical result would hold under the hypothesis of complete financial autarchy. Let us suppose that there is a mass 1 – ␥ of households in country H and a mass ␥ in country F, so that income per household is the same in both countries (when expressed in units of the same currency). Under the assumption of financial autarchy, trade must be balanced each period so that (1 Ϫ ␥)PFtCFt ϭ ␥εt P ∗HtC ∗Ht .

Here I assume that we start from an initial condition with zero net cross-border financial claims, as would necessarily be true in the case of financial autarchy. 3); that is, a unit elasticity of substitution between domestic and foreign goods, and identical preferences in the two countries. But the fact that complete irrelevance is possible (and does not even require an “extreme” preference specification) indicates that the effects of financial globalization need not be large. It is also important to note that real interest-rate equalization does not imply that domestic monetary policy has no effect on domestic aggregate demand, even in the case of a country that is small relative to global markets (country H in the case in which ␥ is near 1).

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International Dimensions of Monetary Policy (National Bureau of Economic Research Conference Report) by Jordi Galí, Mark Gertler


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