Introduction

International dimensions of Optimal Monetary policy

Instructors: Giancarlo Corsetti and Simon Lloyd

(Updated 5th July 2014)

GOALS

The course in this page aims to assess challenges to monetary stabilisation raised by international capital flows and financial linkages. We will do so by characterizing the optimal policy rules in the two-country two-good model which has long been the workhorse in international economics.

INFORMATION ABOUT THE CLASS

I. Theory and policy: You are strongly recommended to familiarise with the basic model, reading:

  • G. Corsetti, L. Dedola and S. Leduc (CDL 2010) "Optimal monetary policy in open economies" in B. Friedman and M. Woodford (eds.), Handbook of Monetary Economics, vol. III, North Holland 2010.

  • An intuitive graphical treatment of optimal policy under complete markets, contrasting PCP LCP and dollar pricing (nominal rigidities in the form of one period preset prices) is provided in G Corsetti and P Pesenti "The Simple Geometry of Transmission and Stabilization in Closed and Open Economies,", NBER International Seminar on Macroeconomics 2007, pages 65-116 National Bureau of Economic Research, Inc.

II. Codes: The Dynare files discussed in the classes (which run on Dynare Version 4.4.2) can be downloaded here. The files have been updated and correspond directly to the examples discussed in class. The paths have also been updated to be more general. The save and load commands are linked to a 'general' path: as long as the folder with your Dynare/MATLAB files includes the subfolder OptMonPolOpen and this is in 'Current Folder' window of your MATLAB, then Dynare/MATLAB will save and load the impulse responses from this subfolder. This should generalise the code for Mac users and those who cannot save on their C-drive. An updated Guide to the MATLAB Files and the lecture slides can also be found below.

DYNARE & MATLAB CLASSES - Simon Lloyd (Updated 5th July 2014)

There will be a class on each of the three days of the course introducing participants to the Dynare and MATLAB files associated with Corsetti, Dedola and Leduc (2010) and other related papers. The code, a guide to the code and the slides can be found below:

  • MATLAB Class Outline: A Guide to the MATLAB Files (Updated 5th July 2014) and Dynare/MATLAB Codes (Updated 5th July 2014)

    • I - Complete Markets and Producer Currency Pricing (Updated 5th July 2014)

      • Impulse Response Functions

    • II - Complete Markets and Cooperation: Local Currency Price Stability (Updated 5th July 2014)

      • Impulse Response Functions

    • III - Incomplete Markets and Cooperation (Updated 5th July 2014)

      • Impulse Response Functions