TY  - JOUR
AU  - Stemp,Peter J.
AU  - Turnovsky,Stephen J.
TI  - Optimal Monetary Policy in an Open Economy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2018
PY  - 1988
Y2  - 1988
UR  - http://www.nber.org/papers/w2018
L1  - http://www.nber.org/papers/w2018.pdf
N1  - Author contact info:
Stephen Turnovsky
Department of Economics
301 Savery Hall; Mail Stop DK 30
University of Washington
Seattle, WA   98195
Tel: 206-545-8028
E-Mail: sturn@u.washington.edu
AB  - This paper analyzes the optimal intertemporal tradeoff between inflation and output in an open economy under perfect foresight. The announcement of the optimal plan may, or may not, generate an initial jump in the exchange rate. That depends upon the real adjustment costs, which such unanticipated changes impose on the economy. In the case that such jumps occur, the question of time consistency of the optimal policy arises. A time consistent solution is obtained provided: (i) the policy maker is not too myopic; (ii) the adjustment costs associated with the jump in the exchange rate are of an appropriate form. The optimal monetary rule is derived and properties of this rule, as well as the overall optimal adjustment of the economy are discussed.
ER  -