Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
Number:
298
Abstract Tesim:
The consequences of a straightforward monetary targeting scheme are examined for a simple dynamic macro model. The notion of "targeting" used below is the strategic one introduced by Rogoff (1985). Numerical simulations are used to demonstrate that for the model under consideration, monetary targeting is likely to lead to a deterioration of policy performance. These examples cast doubt upon the general efficacy of simple targeting schemes in dynamic rational expectations models.
Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
Number:
348
Abstract Tesim:
We derive the empirical implications of a popular class of international macroeconomic models. The real economy is a stochastic exchange model with complete markets. A standard result is that cross-country risk sharing implies perfect correlation between consumption paths across countries. With mild restrictions on the endowment process ii also implies a positive correlation between net exports and output in every country. We introduce money using cash-in-advance constraints and show that the implications for real variables carry over into the monetary economy. These dichotomy and neutrality propositions generalize those in the literature to stochastic environments with heterogeneous agents, and do not require the cash-in-advance constraint to bind in every state. They imply that any correlation between the nominal exchange rate and the balance of trade can be made consistent with the theory.
Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
Number:
348
Abstract Tesim:
We derive the empirical implications of a popular class of international macroeconomic models. The real economy is a stochastic exchange model with complete markets. A standard result is that cross-country risk sharing implies perfect correlation between consumption paths across countries. With mild restrictions on the endowment process ii also implies a positive correlation between net exports and output in every country. We introduce money using cash-in-advance constraints and show that the implications for real variables carry over into the monetary economy. These dichotomy and neutrality propositions generalize those in the literature to stochastic environments with heterogeneous agents, and do not require the cash-in-advance constraint to bind in every state. They imply that any correlation between the nominal exchange rate and the balance of trade can be made consistent with the theory.