The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

New Open Economy Macroeconomics

  • Giancarlo Corsetti
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2550

Abstract

‘New open economy macroeconomics’ (NOEM) refers to a body of literature embracing a new theoretical framework for policy analysis in open economy, aiming to overcome the limitations of the Mundell–Fleming model while preserving the empirical wisdom and policy friendliness of traditional analysis. NOEM contributions have developed general equilibrium models with imperfect competition and nominal rigidities, to reconsider conventional views on the transmission of monetary and exchange rate shocks; they have contributed to the design of optimal stabilization policies, identifying international dimensions of optimal monetary policy; and they have raised issues about the desirability of international policy coordination.

Keywords

Disconnect puzzle Elasticity of substitution Exchange rate pass-through Expenditure switching effects Imperfect competition Inflationary bias International policy coordination International portfolio diversification International transmission mechanism Jensen’s inequality Law of one price Local currency pricing Mundell–Fleming model Neo-Wicksellian’ monetary economics New Keynesian macroeconomics New neoclassical synthesis New open economy macroeconomics Nominal rigidities Optimal monetary policy Optimal tariffs Output gap Producer currency pricing Stabilization Staggered price setting Sticky prices Terms of trade Trade costs Uncertainty 

JEL Classifications

F3 F4 
This is a preview of subscription content, log in to check access.

Bibliography

  1. Adao, B., M.I. Horta Correia, and P. Teles. 2006. On the relevance of exchange rate regimes for stabilization policy. Discussion paper no. 5797. CEPR.Google Scholar
  2. Bacchetta, P., and E. Van Wincoop. 2000. Does exchange rate stability increase trade and welfare? American Economic Review 50: 1039–1109.Google Scholar
  3. Bacchetta, P., and E. Van Wincoop. 2005. A theory of the currency denomination of international trade. Journal of International Economics 67: 295–319.CrossRefGoogle Scholar
  4. Backus, D.K., and G.W. Smith. 1993. Consumption and real exchange rates in dynamic economies with non–traded goods. Journal of International Economics 35: 297–316.CrossRefGoogle Scholar
  5. Benigno, G., and P. Benigno. 2003. Price stability in open economy. Review of Economic Studies 70: 743–764.CrossRefGoogle Scholar
  6. Benigno, G., and P. Benigno. 2006. Designing targeting rules for international monetary policy cooperation. Journal of Monetary Economics 53: 473–506.CrossRefGoogle Scholar
  7. Bergin, P. 2003. Putting the new open economy macroeconomics to a test. Journal of International Economics 60: 3–34.CrossRefGoogle Scholar
  8. Betts, C., and M. Devereux. 2000. Exchange rate dynamics in a model of pricing to market. Journal of International Economics 50: 215–244.CrossRefGoogle Scholar
  9. Blanchard, O., and N. Kiyotaki. 1987. Monopolistic competition and the effects of aggregate demand. American Economic Review 77: 647–666.Google Scholar
  10. Broda, C. 2006. Exchange rate regimes and national price levels. Journal of International Economics 70: 52–81.CrossRefGoogle Scholar
  11. Burstein, A., M. Eichenbaum, and S. Rebelo. 2007. Modeling exchange rate pass-through after large devaluations. Journal of Monetary Economics 54: 346–368.CrossRefGoogle Scholar
  12. Campa, J., and L. Goldberg. 2005. Exchange rate pass through into import prices. Review of Economics and Statistics 87: 679–690.CrossRefGoogle Scholar
  13. Canzoneri, M.B., R. Cumby, and B. Diba. 2005. The need for international policy coordination: What’s old, what’s new, what’s yet to come? Journal of International Economics 66: 363–384.CrossRefGoogle Scholar
  14. Cavallo, M., and F. Ghironi. 2002. Net foreign assets and the exchange rates: Redux revived. Journal of Monetary Economics 49: 1057–1097.CrossRefGoogle Scholar
  15. Chari, V.V., P.J. Kehoe, and E. McGrattan. 2002. Can sticky prices generate volatile and persistent real exchange rates? Review of Economic Studies 69: 633–663.CrossRefGoogle Scholar
  16. Clarida, R., J. Galí, and M. Gertler. 2002. A simple framework for international policy analysis. Journal of Monetary Economics 49: 879–904.CrossRefGoogle Scholar
  17. Corsetti, G. 2006. Openness and the case for flexible exchange rates. Research in Economics 60: 1–21.CrossRefGoogle Scholar
  18. Corsetti, G., and L. Dedola. 2005. A macroeconomic model of international price discrimination. Journal of International Economics 67: 129–156.CrossRefGoogle Scholar
  19. Corsetti, G., and P. Pesenti. 2001. Welfare and macroeconomic interdependence. Quarterly Journal of Economics 116: 421–446.CrossRefGoogle Scholar
  20. Corsetti, G., and P. Pesenti. 2005a. International dimension of optimal monetary policy. Journal of Monetary Economics 52: 281–305.CrossRefGoogle Scholar
  21. Corsetti, G., and P. Pesenti. 2005b. The simple geometry of transmission and stabilization in closed and open economies. Working paper no. 11341. Cambridge, MA: NBER.Google Scholar
  22. Corsetti, G., L. Dedola, and S. Leduc. 2005. DSGE models of high exchange rate volatility and low pass through. Discussion paper no. 5377. CEPR.Google Scholar
  23. Devereux, M., and C. Engel. 2003. Monetary policy in open economy revisited: Price setting and exchange rate flexibility. Review of Economic Studies 70: 765–783.CrossRefGoogle Scholar
  24. Devereux, M., and A. Sutherland. 2007. Monetary policy and portfolio choice in an open economy macro model. Journal of the European Economics Association 5: 491–499.CrossRefGoogle Scholar
  25. Devereux, M., C. Engel, and C. Tille. 2003. Exchange rate pass-through and the welfare effects of the euro. International Economic Review 44: 223–242.CrossRefGoogle Scholar
  26. Devereux, M., C. Engel, and P. Storgaard. 2004. Endogenous exchange rate pass-through when nominal prices are set in advance. Journal of International Economics 63: 263–291.CrossRefGoogle Scholar
  27. Dornbusch, R. 1987. Exchange rates and prices. American Economic Review 77: 93–106.Google Scholar
  28. Duarte, M., and M. Obstfeld. 2007. Monetary policy in the open economy revisited: The case for exchange-rate flexibility restored. Working paper. Online. Available at http://elsa.berkeley.edu/~obstfeld/DO_JIMF-2.pdf. Accessed 29 Nov 2007.
  29. Engel, C. 2003. Expenditure switching and exchange rate policy. In NBER macroeconomics annual 2002, vol. 17, 231–272.Google Scholar
  30. Engel, C., and J. Rogers. 1996. How wide is the border? American Economic Review 86: 1112–1125.Google Scholar
  31. Galí, J., and T. Monacelli. 2003. Monetary policy and exchange rate volatility in a small open economy. Review of Economic Studies 72: 707–734.CrossRefGoogle Scholar
  32. Ganelli, G. 2005. The new open economy macroeconomics of government debt. Journal of International Economics 65: 167–184.CrossRefGoogle Scholar
  33. Ghironi, F. 2006. Macroeconomic interdependence under incomplete markets. Journal of International Economics 76: 428–450.CrossRefGoogle Scholar
  34. Goldberg, P.K., and M.M. Knetter. 1997. Goods prices and exchange rates: What have we learned? Journal of Economic Literature 35: 1243–1272.Google Scholar
  35. Goldberg, L., and C. Tille. 2005. Vehicle currency use in international trade. Staff report no. 200. Federal Reserve Bank of New York.Google Scholar
  36. Goldberg, P.K., and F. Verboven. 2001. The evolution of price dispersion in the European car market. Review of Economic Studies 68: 811–848.CrossRefGoogle Scholar
  37. Hau, H. 2000. Exchange rate determination: The role of factor price rigidities and nontradeables. Journal of International Economics 50: 421–447.CrossRefGoogle Scholar
  38. Kollman, R. 2002. Monetary policy rules in the open economy: Effects on welfare and business cycles. Journal of Monetary Economics 49: 989–1015.CrossRefGoogle Scholar
  39. Laxton, D., and P. Pesenti. 2003. Monetary rules for small, open, emerging economies. Journal of Monetary Economics 50: 1109–1146.CrossRefGoogle Scholar
  40. Lubik, T., and F. Schorfheide. 2006. A Bayesian look at new open economy macroeconomics. In NBER macroeconomics annual 2005, vol. 20, 313–366.Google Scholar
  41. Monacelli, T. 2005. Monetary policy in a low pass-through environment. Journal of Money Credit and Banking 6: 1047–1066.CrossRefGoogle Scholar
  42. Obstfeld, M. 2002. Inflation-targeting, exchange rate pass-through, and volatility. American Economic Review 92: 102–107.CrossRefGoogle Scholar
  43. Obstfeld, M., and K. Rogoff. 1995. Exchange rate dynamics redux. Journal of Political Economics 102: 624–660.CrossRefGoogle Scholar
  44. Obstfeld, M., and K. Rogoff. 1998. Risk and exchange rates. In Contemporary economic policy: Essays in honor of Assaf Razin, ed. H. Helpman and E. Sadka. Cambridge/New York: Cambridge University Press.Google Scholar
  45. Obstfeld, M., and K. Rogoff. 2000. New directions for stochastic open economy models. Journal of International Economics 50: 117–153.CrossRefGoogle Scholar
  46. Obstfeld, M., and K. Rogoff. 2001. The six major puzzles in international finance: Is there a common cause? In NBER macroeconomics annual 2000, vol. 15, 339–390.Google Scholar
  47. Obstfeld, M., and K. Rogoff. 2002. Global implications of self-oriented national monetary rules. Quarterly Journal of Economics 117: 503–536.CrossRefGoogle Scholar
  48. Pappa, E. 2004. Do the ECB and the Fed really need to cooperate? Optimal monetary policy in a two-country world. Journal of Monetary Economics 51: 753–779.CrossRefGoogle Scholar
  49. Smets, F., and R. Wouters. 2002. Openness, imperfect exchange rate pass-through and monetary policy. Journal of Monetary Economics 49: 947–981.CrossRefGoogle Scholar
  50. Sutherland, A. 2005. Incomplete pass-through and the welfare effects of exchange rate variability. Journal of International Economics 65: 375–400.CrossRefGoogle Scholar
  51. Svensson, L.E.O., and S. van Wijnbergen. 1989. Excess capacity, monopolistic competition and international transmission of monetary disturbances. Economic Journal 99: 785–805.CrossRefGoogle Scholar
  52. Tille, C. 2001. The role of consumption substitutability in the international transmission of shocks. Journal of International Economics 53: 421–444.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Giancarlo Corsetti
    • 1
  1. 1.