NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Andrea Ferrero

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Working Papers

April 2008Current Account Dynamics and Monetary Policy
with Mark Gertler, Lars E.O. Svensson: w13906
We explore the implications of current account adjustment for monetary policy within a simple two-country DSGE model. Our framework nests Obstfeld and Rogoff's (2005) static model of exchange rate responsiveness to current account reversals. It extends this approach by endogenizing the dynamic adjustment path and by incorporating production and nominal price rigidities in order to study the role of monetary policy. We consider two different adjustment scenarios. The first is a "slow burn" where the adjustment of the current account deficit of the home country is smooth and slow. The second is a "fast burn" where, owing to a sudden shift in expectations of relative growth rates, there is a rapid reversal of the home country's current account. We examine several different monetary policy reg...

Published: Current Account Dynamics and Monetary Policy, Andrea Ferrero, Mark Gertler, Lars E. O. Svensson. in International Dimensions of Monetary Policy , Gali and Gertler. 2009

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

 
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