Working Paper: CEPR ID: DP5080
Authors: Giancarlo Corsetti; Paolo Pesenti
Abstract: 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.
Keywords: exchange rate passthrough; international cooperation; nominal rigidities; optimal monetary policy
JEL Codes: E31; E52; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| optimal monetary policy (E63) | macroeconomic stabilization (E63) |
| monetary expansion (E50) | output gaps (E23) |
| productivity shocks (O49) | employment gaps (J63) |
| price rigidities (D43) | adjustment to productivity shocks (O49) |
| exchange rate movements (F31) | stabilization process (E63) |