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

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Staff Reports

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

May 2005 Number 209

JEL classification: E31, E52, F42

Authors: Giancarlo Corsetti and Paolo Pesenti

This paper provides an introduction to the recent literature on macroeconomic stabilization in closed and open economies. We present a stylized theoretical framework, illustrating its main properties with the help of an intuitive graphical apparatus. Among the issues we discuss are optimal monetary policy and the welfare gains from macroeconomic stabilization, the international transmission of real and monetary shocks and the role of exchange rate pass-through, and the design of optimal exchange rate regimes and monetary coordination among interdependent economies.

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75 pages / 473 kb

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