Optimal Monetary Policy in an Open Economy / Peter J. Stemp, Stephen J. Turnovsky.

Format:

Book

Author/Creator:

Stemp, Peter J.

Contributor:

National Bureau of Economic Research.

Turnovsky, Stephen J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2018.

NBER working paper series no. w2018

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1986.

Summary:

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.

Notes:

Print version record

September 1986.