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Choosing Exchange Rate Regime: Freedom and Credibility

Choosing Exchange Rate Regime: Freedom and Credibility

At the beginning of work in this vein, Rogoff and I also included gooey goods cost into a two-country macroeconomic design with monopolistic manufacturers and intertemporally capitalizing on consumers

That structure allowed all of us not only to research the dynamic results of macroeconomic shocks, and to carry out a thorough welfare research of this effects of these shocks, throughout the originating country and abroad. One crucial outcome of that actually work would be to throw question on previous ad hoc models of worldwide plan optimization. Those models assumed that state welfare was associated with a laundry variety of endogenous macro results (the terms of trade, output, inflation, current fund — basically, whatever suited the needs of the moment). Into the framework that Rogoff and that I developed, the basic interrelations among this type of endogenous factors, and their shared ultimate influence on national benefit, become clarified. (11)

In subsequent work, Rogoff and I also adjust this new available economic climate macroeconomics platform to a clearly stochastic setting. (more…)