New Keynesian, Open-Economy Models and Their Implications for Monetary Policy

41 Pages Posted: 28 Apr 2003

See all articles by David Bowman

David Bowman

Board of Governors of the Federal Reserve

Brian M. Doyle

Board of Governors of the Federal Reserve System

Date Written: March 2003

Abstract

The considerable amount of research in recent years on New Keynesian, open-economy models - models with nominal price rigidities and intertemporally maximizing agents - has yielded fresh insights for what Alan Blinder has called the "dark art" of making monetary policy. The literature has made its greatest contributions in understanding the transmission of shocks across countries, exchange rate pass-through and the effects of different pricing rules, and how these impact optimal monetary policy rules and international policy coordination. While the literature has by no means solved the great mysteries of open-economy macroeconomics, it has laid out a framework where we can ask normative questions of monetary policy, such as how much a central bank should react to movements in the exchange rate. However, monetary policy remains an empirical endeavour, and would be helped by further work which empirically estimates or calibrates these new models.

Keywords: New open-economy macroeconomics, international policy coordination, optimal monetary policy, pricing-to-market, current account dynamics

JEL Classification: F41

Suggested Citation

Bowman, David H. and Doyle, Brian M., New Keynesian, Open-Economy Models and Their Implications for Monetary Policy (March 2003). FRB International Finance Discussion Paper No. 762, Available at SSRN: https://ssrn.com/abstract=392402 or http://dx.doi.org/10.2139/ssrn.392402

David H. Bowman

Board of Governors of the Federal Reserve ( email )

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Brian M. Doyle (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Washington, DC 20551
United States
202-785-6011 (Phone)
202-263-4843 (Fax)

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