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| Author: | Bencivenga, V. R. Huybens, E. Smith, B. D. |
| Title: | What to stabilize in the open economy |
| Journal: | International Economic Review
2002 : NOV, VOL. 43:4, p. 1289-1307 |
| Index terms: | Macroeconomic models Economic systems Open economy |
| Language: | eng |
| Abstract: | The authors consider the question how "best" to maintain price-level stability in an open economy, and evaluate three posible policy choice: (a) constant money growth rate rule; (b) a fixed exchange rate; and (c) policy of explicit commitment to a price-level target. They show that the sets of equilibria under three regimes are dramatically different. When all countries follow the policy of fixing a constant rate of money growth, there are no equilibria displaying endogenously arising volatility and there is no indeterminacy of equilibrium. |
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