SOLUTIONS FOR RATIONAL EXPECTATION MODELS USING LINEAR SOLUTION METHODS 1 (2005)
Giovanni Lombardo, Alan Sutherland, Giovanni Lombardo, Alan Sutherl
In 2005 all ECB publications will feature a motif taken from the €50 banknote. WORKING PAPER SERIES
Cost-push shocks and monetary policy in open economies (2005)
This paper analyses the implications of cost-push shocks for the optimal choice of monetary policy target in a two-country sticky-price model. In addition to cost-push shocks, each country is subject...
Cost-push shocks and monetary policy in open economies (2004)
This paper analyses the implications of cost-push shocks for the optimal choice of monetary policy target in a two-country sticky-price model. In addition to cost-push shocks, each country is subject...
Cost-push shocks and monetary policy in open economies (2004)
This paper analyses the implications of cost-push shocks for the optimal choice of monetary policy target in a two-country sticky-price model. In addition to cost-push shocks, each country is subject...
A dynamic general equilibrium model of a small open economy is presented where agents may choose the frequency of price changes. A fixed exchange rate is compared to inflation targeting and money...
Currency Crises and the Term Structure of Interest Rates
The currency crisis literature has identified two possible types of crisis: fundamentals based crises and self-fulfilling crises. A fundamentals based crisis arises when some state variable, such as...
Giovanni Lombardo, Alan Sutherland
This paper shows how to compute a second-order accurate solution of a non-linear rational expectation model using algorithms developed for the solution of linear rational expectation models. This...
Cost-push shocks and monetary policy in open economies
This paper analyses the implications of cost-push shocks for the optimal choice of monetary policy target in a two-country sticky-price model. In addition to cost-push shocks, each country is subject...
Britain's Return to Gold and Entry into the EMS: Expectations, Joining Conditions and Credibility
Miller, Marcus, Sutherland, Alan
In this paper the surprising conclusion of Smith and Smith (1990) that the prospect of Britain's return to gold in 1925 had the effect of weakening sterling is subjected to critical analysis. It is...
The `Walters' Critique of the EMS: A Case of Inconsistent Expectations
Miller, Marcus, Sutherland, Alan
Alan Walters has suggested that the European Monetary System will prove dynamically unstable when capital controls are removed. The argument is analysed within a model that includes overlapping...
Financial Globalization and Monetary Policy
Devereux, Michael B, Sutherland, Alan
The process of financial globalization has significantly altered the environment in which national monetary policy authorities operate. What implications does this have for the design of monetary...
Devereux, Michael B, Sutherland, Alan
This paper presents a general approximation method for characterizing time-varying equilibrium portfolios in a two-country dynamic general equilibrium model. The method can be easily adapted to most...
Monetary Policy and Portfolio Choice Choice in an Open Economy Macro Model
Michael B. Devereux, Alan Sutherland
This paper explores the role of monetary policy in an open economy in an environment of endogenous portfolio choice. The model is simple enough to allow solutions for optimal portfolios to be derived...
International monetary policy coordination and financial market integration.
The welfare gains from international coordination of monetary policy are analysed in a two-country model with sticky prices. The gains from coordination are compared under two alternative structures...
Monetary Union, Entry Conditions and Economic Reform.
F. Gulcin Ozkan, Anne Sibert, Alan Sutherland
This paper models the behaviour of a potential entrant into a monetary union where there is an inflation entry condition. In addition to making a monetary policy decision during a qualifying period,...
F. Gulcin Ozkan, Alan Sutherland
Existing models of speculative attacks and balance of payments crises do not provide a good explanation for the breakdown of the ERM in 1992/93. This paper presents an alternative model which...
Solving for Country Portfolios in Open Economy Macro Models
Devereux, Michael B, Sutherland, Alan
Open economy macroeconomics typically abstracts from portfolio structure. But the recent experience of financial globalization makes it important to understand the determinants and composition of...
Policy Measures to Avoid a Currency Crisis.
Ozkan, F Gulcin, Sutherland, Alan
This paper considers a number of policy measures that may be used to preserve a fixed exchange rate. These are analyzed in a model where a switch of exchange-rate regime is triggered by an optimizing...
Target Zone Models with Price Inertia: Solutions and Testable Implications.
Many recent papers suggest that the basic flex-price target zone model does not perform well empirically. This paper investigates the testable implications of a sticky-price target zone model and...
The Expenditure Switching Effect, Welfare and Monetary Policy in a Small Open Economy
This paper analyses the implications of the 'expenditure switching effect' for the role of the exchange rate in monetary policy in a small open economy. It is shown that, when elasticity of...
Monetary union and the Maastricht inflation criterion: The accession countries
F. Gulcin Ozkan, Anne Sibert, Alan Sutherland
We model an accession country facing a Maastricht-type inflation criterion that specifies an inflation ceiling. In addition to deciding whether or not to satisfy this criterion, the country must...
The "Walters Critique" of the EMS--A Case of Inconsistent Expectations?
Miller, Marcus, Sutherland, Alan
Alan Walters has suggested that the European Monetary System will prove dynamically unstable when capital controls are removed. The argument is analyzed within a model where overlapping contracts...
Financial Market Integration and Macroeconomic Volatility.
The process of financial market integration is modeled in an intertemporal general equilibrium framework as the elimination of trading frictions between financial markets in different countries....
Country portfolios in open economy macro models
Michael B. Devereux, Alan Sutherland
This paper develops a simple approximation method for computing equilibrium portfolios in dynamic general equilibrium open economy macro models. The method is widely applicable, simple to implement,...
Michael B Devereux, Alan Sutherland
This paper presents a general approximation method for characterizing timevarying equilibrium portfolios in a two-country dynamic general equilibrium model. The method can be easily adapted to most...
Monetary and fiscal interactions in open economies.
Giovanni Lombardo, Alan Sutherland
A two-country sticky-price model is used to analyse the interactions between fiscal and monetary policy. The role of an ‘activist’ fiscal policy as a stabilisation tool is considered and a...
Giovanni Lombardo, Alan Sutherland
This paper shows how to compute a second-order accurate solution of a non-linear rational expectation model using algorithms developed for the solution of linear rational expectation models. The...
Foreign Money Shocks and the Welfare Performance of Alternative Monetary Policy Regimes
The welfare properties of monetary policy regimes for a country subject to foreign money shocks are examined in a two-country sticky-price model. Money targeting is found to be welfare superior to a...
Exchange Rate Dynamics and Financial Market Integration
Imperfect capital mobility is modelled in a two-country intertemporal general equilibrium framework by assuming that agents face costs of adjusting asset stocks in foreign asset markets. Goods...
Speculative Anticipations of Sterling's Return to Gold: Was Keynes Wrong?
Miller, Marcus, Sutherland, Alan
The view held by Keynes that there was a speculative appreciation of sterling prior to its return to the gold standard, has been challenged by Gregor Smith and Todd Smith, who argue that expectations...
Inflation Convergence with Realignments in a Two-Speed Europe.
Lambertini, Luisa, Miller, Marcus, Sutherland, Alan
In the first decade of its existence, the European Monetary System passed through three phases of realignments: full accommodation, partial accommodation, and zero accommodation of inflation...
International monetary policy coordination and financial market integration
The welfare gains from international coordination of monetary policy are analysed in a two-country model with sticky prices. The gains from coordination are compared under two alternative structures...
Incomplete Pass-Through and the Welfare Effects of Exchange Rate Variability.
This paper considers the implications of incomplete exchange rate pass-through for optimal monetary and exchange rate policy. A two-country model is presented which allows an explicit derivation of...
A Simple Second-Order Solution Method for Dynamic General Equilibrium Models.
This paper describes a simple method for the calculation of second-order solutions to dynamic general equilibrium models. The method relies on standard linear solution procedures and does not require...
Inflation Convergence with Realignments in a Two-Speed Europe
Lambertini, Luisa, Miller, Marcus, Sutherland, Alan
In the first decade of its existence the EMS passed through three phases of realignments: full accommodation, partial accommodation and zero accommodation of inflation differentials. To what extent,...
Target Zone Models with Price Inertia: Some Testable Implications
Many recent papers suggest that the basic flex-price target zone model does not perform well empirically. This paper derives some of the testable implications of a sticky-price target zone model in...
Ozkan, F Gulcin, Sutherland, Alan
Existing models of exchange rate crises do not provide a good explanation for the breakdown of the ERM in 19923. This paper presents an alternative model which captures some of the important features...
Fiscal Crises and Aggregate Demand: Can High Public Debt Reverse the Effects of Fiscal Policy?
This paper shows how the power of fiscal policy to affect consumption can vary depending on the level of public debt. At moderate levels of debt fiscal policy has the traditional Keynesian effects....
Monetary Union, Entry Conditions and Economic Reform
Ozkan, F Gulcin, Sibert, Anne, Sutherland, Alan
This paper models the behaviour of a potential entrant into a monetary union where there is an inflation entry condition. In addition to making a monetary policy decision during a qualifying period,...
Monetary Regimes and Labour Market Reform
Sibert, Anne, Sutherland, Alan
Policy-makers’ incentives to undertake costly reform depends on the international monetary system. We consider the effect of monetary regimes on labour market reform. We find international...
Inflation Targeting in a Small Open Economy
A small open economy model is presented, which allows explicit treatment of uncertainty and its effects on macroeconomic behaviour. Inflation targeting is compared to the welfare maximizing monetary...
Incomplete Pass-Through and the Welfare Effects of Exchange Rate Variability
This Paper considers the implications of incomplete exchange rate pass-through for optimal monetary and exchange rate policy. A two-country model is presented which allows an explicit derivation of...
A Simple Second-Order Solution Method For Dynamic General Equilibrium Models
This Paper describes a simple method for the calculation of second-order solutions to dynamic general equilibrium models. The method relies on standard linear solution procedures and does not require...
International Monetary Policy Coordination and Financial Market Integration
This Paper analyses the implications of financial market structure for the existence and size of welfare gains from international monetary policy coordination. Policy coordination is analysed in a...
Policy Instrument Choice and non-coordinated Monetary Policy in Interdependent Economies
Lombardo, Giovanni, Sutherland, Alan
Non-coordinated monetary policy is analysed in a stochastic two-country general equilibrium model. Non-coordinated equilibria are compared in two cases: one where policy is set in terms of...
The Expenditure Switching Effect and the Choice Between Fixed and Floating Exchange Rates
A two-country sticky-price general equilibrium model is used to examine the implications of the expenditure switching effect for the welfare properties of fixed and floating exchange rate regimes. A...
Contacts, Credibility and Common Knowledge - Their Influence on Inflation Convergence
Marcus Miller, Alan Sutherland
Inflation , Currency pegs , Economic models ,
Financial Globalization and Monetary Policy
Michael B. Devereux, Alan Sutherland
What does financial globalization imply for the design of monetary policy? Does the case for price stability change in an environment of large cross country gross asset holdings?. This paper is...
Solving for Country Portfolios in Open Economy Macro Models
Michael B. Devereux, Alan Sutherland
This paper presents a general approximation method for characterizing time-varying equilibrium portfolios in a two-country dynamic general equilibrium model. the method can be easily adapted to most...
Michael B. Devereux, Alan Sutherland
This paper presents a general approximation method for characterizing time-varying equilibrium portfolios in a two-country dynamic general equilibrium model. the method can be easily adapted to most...
Exchange Rate Realignments and Realignment Expectations.
Stansfield, Ed, Sutherland, Alan
One view of exchange-rate realignments is that they undermine the credibility of a fixed exchange rate by creating expectations of further realignments. This paper presents an alternative model where...
Policy instrument choice and non-coordinated monetary in interdependent economies
Lombardo, Giovanni, Sutherland, Alan
Non-coordinated monetary policy is analysed in a stochastic two-country general equilibrium model. Non-coordinated equilibria are compared in two cases: one where policy is set in terms of...
Cost-Push Shocks and Monetary Policy and Monetary Policy
This paper analyses the implications of cost-push shocks for the optimal choice of monetary policy target in an two-country sticky-price model. In addition to cost-push shocks, each country is...
Country Portfolios in Open Economy Macro Models
Michael B. Devereux, Alan Sutherland
This paper develops a simple approximation method for computing equilibrium portfolios in dynamic general equilibrium open economy macro models. The method is widely applicable, simple to implement,...
A quantitative analysis of cost-push shocks and optimal inflation volatility
This article presents a quantitative analysis of optimal inflation volatility in a simple sticky-price general equilibrium model subject to both supply and cost-push shocks. It is found that optimal...
Solving for Country Portfolios in Open Economy Macro Models
Michael B. Devereux, Alan Sutherland
Open economy macroeconomics typically abstracts from portfolio structure. But the recent experience of financial globalisation makes it important to understand the determinants and composition of...
Financial globalization and monetary policy
Devereux, Michael B., Sutherland, Alan
Recent data show substantial increases in the size of gross external asset and liability positions. The implications of these developments for optimal conduct of monetary policy are analyzed in a...
Financial globalization and monetary policy
Devereux, Michael B., Sutherland, Alan
Recent data show substantial increases in the size of gross external asset and liability positions. The implications of these developments for optimal conduct of monetary policy are analyzed in a...
Valuation Effects and the Dynamics of Net External Assets
Michael B. Devereux, Alan Sutherland
The traditional current account can be an inaccurate measure of the change in the net foreign asset (NFA) position. Using gross asset and liability positions at the country level, a number of...
A Portfolio Model of Capital Flows to Emerging Markets
Michael B Devereux, Alan Sutherland
Since the crises of the late 1990's, most emerging market economies have built up substantial positive holdings of US dollar treasury bills, while at the same time experiencing a boom in FDI capital...
Valuation Effects and the Dynamics of Net External Assets
Devereux, Michael B, Sutherland, Alan
The traditional current account can be an inaccurate measure of the change in the net foreign asset (NFA) position. Using gross asset and liability positions at the country level, a number of...
Financial globalization and monetary policy
Devereux, Michael B., Sutherland, Alan
Recent data show substantial increases in the size of gross external asset and liability positions. The implications of these developments for optimal conduct of monetary policy are analyzed in a...
A portfolio model of capital flows to emerging markets
Devereux, Michael B., Sutherland, Alan
Since the crises of the late 1990's, most emerging market economies have built up substantial positive holdings of US dollar treasury bills, while at the same time experiencing a boom in FDI capital...