Numerical Initial Value Problems in Ordinary Differential Equations

This paper analyses the implications of imperfect exchange rate passthrough for optimal monetary policy in a linearised open-economy dynamic general equilibrium model calibrated to euro area data. Imperfect exchange rate pass through is modelled by assuming sticky import price behaviour. The degree of domestic and import price stickiness is estimated by reproducing the empirical identified impulse response of a monetary policy and exchange rate shock conditional on the response of output, net trade and the exchange rate. It is shown that a central bank that wants to minimise the resource costs of staggered price setting will aim at minimising a weighted average of domestic and import price inflation.

Openness, imperfect exchange rate pass-through and monetary policy. NBB Working Paper Nr. 19

The ‘new open-economy macroeconomics’ seeks to provide an improved basis for monetary and exchange-rate policy through the construction of open-economy models that feature rational expectations, optimising agents, and slowly adjusting prices of goods. This paper promotes an alternative approach for constructing such models by treating imports not as finished consumer goods but rather as raw-material inputs to the home economy’s productive process. This treatment leads to a clean and simple theoretical structure that has some empirical attractions as well. A particular smalleconomy model is calibrated and its properties exhibited, primarily by means of impulse response functions. The preferred variant is shown to feature a pattern of correlations between exchange-rate changes and inflation that is more realistic than provided by a more standard specification. Important recent events are interpreted in light of the alternative models.

Monetary Policy for an Open Economy: An Alternative Framework with Optimizing Agents and Sticky Prices

This paper presents the results of a large Australia‐wide survey which collected farm financial information and information about changes to farm‐management practices, as well as information about education and training, and a smaller survey of farmers who attended one of three training courses for farmers. The paper considers the relationship between education and training outcomes at macro and micro levels. At the macro level, education and training as well as prompts for change are considered, while at the micro level the influence of training on changes to practice is examined. Education and training enhance farmers’ ability and willingness to make successful changes to their management practice. The training program is generally only one of several factors which influence participants to make changes in their practice. Training events are opportunities for interaction between participants and with expert trainers. This interaction assists in altering values and attitudes toward new practices.

Education and training: impacts on farm management practice

This paper develops strategic monetary policies using a standard two-country macro model under flexible exchange rates. The equilibria considered include feedback Nash and feedback Stackelberg, both of which are compared to the Pareto optimal cooperative equilibrium. The optimal policies are obtained as feedback rules in which real money supplies are adjusted to movements in the real exchange rate. The properties of these policies and their welfare implications are analyzed using numerical simulations. The contrast in the present results with those obtained previously for a short-run horizon suggest the importance of both intertemporal and intratemporal tradeoffs in the determination of optimal strategic policies.

/pdf/dynamic-strategic-monetary-policies-and-coordination-in-364z0cbzj1.pdf

Dynamic Strategic Monetary Policies and Coordination in Interdependent Economies

This paper analyzes the optimal intertemporal tradeoff between inflation and output in an open economy under perfect foresight. The announcement of the optimal plan may, or may not, generate an initial jump in the exchange rate. That depends upon the real adjustment costs, which such unanticipated changes impose on the economy. In the case that such jumps occur, the question of time consistency of the optimal policy arises. A time consistent solution is obtained provided: (i) the policy maker is not too myopic; (ii) the adjustment costs associated with the jump in the exchange rate are of an appropriate form. The optimal monetary rule is derived and properties of this rule, as well as the overall optimal adjustment of the economy are discussed.

Optimal Monetary Policy in an Open Economy

https://www.nber.org/system/files/working_papers/w2018/w2018.pdf

Government intervention in the provision of on‐the‐job training*

A stylized representation of the check-list approach to monetary policy is developed. In order to examine this approach in a formal framework the literature on optimal money supply rules is extended with the check-list being interpreted as an optimal money supply rule that depends on many variables and attempts to keep the economy on a preplanned path despite unexpected shocks. The strengths and weaknesses of the check-list approach are then examined

Optimal Weights in a Check‐List of Monetary Indicators*

This article argues that the recent implementation of monetary policy in Australia has been dominated by the response to a large range of unanticipated shocks. In the process of trying to minimise the adverse effects of such shocks, considerable uncertainty has been created about likely outcomes in the medium term. This makes medium-term objectives harder to achieve. Taking the reduction of inflation as an example of an appropriate medium-term objective, simulations are presented using the Murphy model of the Australian economy. The simulations demonstrate that a tightening of monetary policy will reduce inflation more slowly if private agents believe that the tightening is unlikely to be sustained for long. Under uncertainty, monetary policy will have to be tighter and real GDP significantly lower to achieve a given reduction in inflation. A confingency rule of medium complexity is suggested as one way in which appropriate medium-term objectives might be achieved while allowing some flexibility to react to unexpected outcomes in the short run.

Peter J. Stemp

Papers

Optimal Monetary Policy in an Open Economy

Optimal Monetary Policy in an Open Economy

Government intervention in the provision of on‐the‐job training*

Optimal Weights in a Check‐List of Monetary Indicators*

Monetary Policy in Australia: The Conflict between Short‐Term and Medium‐Term Objectives