Working Paper: CEPR ID: DP6578
Authors: Giancarlo Corsetti
Abstract: 'New open economy macroeconomics' (NOEM) refers to a body of literature embracing a new theoretical framework for policy analysis in open economy, aiming to overcome the limitations of the Mundell-Fleming model while preserving the empirical wisdom and policy friendliness of traditional analysis. NOEM contributions have developed general equilibrium models with imperfect competition and nominal rigidities, to reconsider conventional views on the transmission of monetary and exchange rate shocks; they have contributed to the design of optimal stabilization policies, identifying international dimensions of optimal monetary policy; and they have raised issues about the desirability of international policy coordination.
Keywords: exchange rates; international policy coordination; Mundell-Fleming model; open economy models; stabilization policy
JEL Codes: F33; F40; F41; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| home monetary expansion (E49) | domestic output (E23) |
| home monetary expansion (E49) | domestic consumers' demand (D12) |
| home monetary expansion (E49) | depreciation of home currency (F31) |
| depreciation of home currency (F31) | relative price of foreign goods (F31) |
| relative price of foreign goods (F31) | real income for domestic consumers (F61) |
| surprise monetary contractions (E59) | appreciation of home currency (F31) |
| appreciation of home currency (F31) | purchasing power of consumers (D12) |