DP5080 The Simple Geometry of Transmission and Stabilization in Closed and Open Economies

Author(s): Giancarlo Corsetti, Paolo Pesenti
Publication Date: May 2005
Keyword(s): exchange rate pass-through, international cooperation, nominal rigidities, optimal monetary policy
JEL(s): E31, E52, F42
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5080

This paper provides an introduction to the recent literature on macroeconomic stabilization in closed and open economies. We present a stylized theoretical framework, and illustrate its main properties with the help of an intuitive graphical apparatus. Among the issues we discuss: optimal monetary policy and the welfare gains from macroeconomic stabilization; international transmission of real and monetary shocks and the role of exchange rate pass-through; the design of optimal exchange rate regimes and monetary coordination among interdependent economies.