Jump to ContentJump to Main Navigation
International Dimensions of Monetary Policy$
Users without a subscription are not able to see the full content.

Jordi Gali and Mark Gertler

Print publication date: 2010

Print ISBN-13: 9780226278865

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226278872.001.0001

Show Summary Details
Page of

PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2022. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 30 June 2022

Current Account Dynamics and Monetary Policy

Current Account Dynamics and Monetary Policy

(p.199) 4 Current Account Dynamics and Monetary Policy
International Dimensions of Monetary Policy
Andrea Ferrero, Mark Gertler, Lars E. O. Svensson
University of Chicago Press

This chapter examines the implications of current account adjustment for monetary policy. A two-country monetary dynamic stochastic general equilibrium (DSGE) model with nominal rigidities and incomplete international financial markets to study the role of global imbalances is developed. The framework is initialized to match the recent U.S. account deficit and its overall indebtedness with respect to the rest of the world. It is found that good monetary management can significantly mitigate any pain from current account adjustment. A policy that works well under either the slow or fast burn scenarios is domestic inflation targeting. By contrast, attempts to peg the exchange under the fast burn can lead to considerable damage to the economy. On the other hand, consumer price index (CPI) inflation targeting is relatively harmful under full exchange rate pass-through, but not so much when the latter is partial.

Keywords:   current account, monetary policy, dynamic stochastic general equilibrium, DSGE, financial markets, monetary management

Chicago Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs, and if you can't find the answer there, please contact us.