The Simple Geometry of Transmission and Stabilization in Closed and Open Economies

Corsetti, Giancarlo; Pesenti, Paolo A.

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The Simple Geometry of Transmission and Stabilization in Closed and Open Economies

CEPR Discussion Paper No. 5080

77 Pages Posted: 6 Oct 2005

See all articles by Giancarlo Corsetti

Giancarlo Corsetti

European University Institute; University of Cambridge; Centre for Economic Policy Research (CEPR)

Paolo A. Pesenti

Federal Reserve Bank of New York; National Bureau of Economic Research (NBER)

There are 2 versions of this paper

Date Written: May 2005

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: Optimal monetary policy, nominal rigidities, exchange rate pass-through, international cooperation

JEL Classification: E31, E52, F42

Suggested Citation: Suggested Citation

Corsetti, Giancarlo and Pesenti, Paolo A., The Simple Geometry of Transmission and Stabilization in Closed and Open Economies (May 2005). CEPR Discussion Paper No. 5080, Available at SSRN: https://ssrn.com/abstract=776667