Monetary Policy, Determinancy and Learnability in the Open Economy

J. Bullard, E. Schaling

    Research output: Working paperDiscussion paperOther research output

    Abstract

    We study how determinacy and learnability of global rational expectations equilibrium may be affected by monetary policy in a simple, two country, New Keynesian framework.The two blocks may be viewed as the U.S. and Europe, or as regions within the euro zone.We seek to understand how monetary policy choices may interact across borders to help or hinder the creation of a unique rational expectations equilibrium worldwide which can be learned by market participants. We study cases in which optimal policies are being pursued country by country as well as some forms of cooperation.We find that open economy considerations may alter conditions for determinacy and learnability relative to closed economy analyses, and that new concerns can arise in the analysis of classic topics such as the desirability of exchange rate targeting and monetary policy cooperation. Keywords: Indeterminacy, learning, monetary policy rules, new open economy macroeconomics, exchange rate regimes, second generation policy coordination.
    Original languageEnglish
    Place of PublicationTilburg
    PublisherVakgroep CentER
    Number of pages53
    Volume2005-116
    Publication statusIn preparation - 2005

    Publication series

    NameCentER Discussion Paper
    Volume2005-116

    Keywords

    • learning
    • monetairy policy
    • open economy
    • macroeconomics
    • exchange rate
    • indeterminacy
    • second generation policy coordination

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  • Cite this

    Bullard, J., & Schaling, E. (2005). Monetary Policy, Determinancy and Learnability in the Open Economy. (CentER Discussion Paper; Vol. 2005-116). Vakgroep CentER.