Working Paper: NBER ID: w11341
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: macroeconomic stabilization; monetary policy; exchange rate regimes; international transmission
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 |
|---|---|
| Monetary Policy (E52) | Aggregate Demand (E00) |
| Monetary Policy (E52) | Real Consumption (D11) |
| Productivity Shocks (O49) | Output (Y10) |
| Productivity Shocks (O49) | Employment (J68) |
| Monetary Policy (E52) | Output Gap (E23) |
| Exchange Rate Movements (F31) | International Relative Prices (F16) |
| Monetary Policy (E52) | Stabilization of Exchange Rate Effects (F31) |