| Home > Research > Research Publications |
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| Research Update |
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| New Titles in the Staff
Reports Series |
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| Number 2, 2008 |
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| Macroeconomics and Growth |
| No. 323, April 2008 |
| Optimal Monetary Policy under Sudden Stops |
| Vasco Cúrdia |
| This paper analyzes what monetary policy should accomplish in the event of a sudden stop of capital inflows from abroad. In such an event, optimal monetary policy induces higher interest rates and exchange rate depreciation. This policy is fairly well approximated by a flexible targeting rule, which stabilizes a basket composed of domestic price inflation, the exchange rate, and output. Cúrdia shows that from a welfare perspective, the success of a fixed exchange rate regime depends on the economic environment. For the benchmark parameterization, the peg performs the worst of the simple rules considered. For alternative parameterizations that feature low nominal rigidities or high elasticity of foreign demand, the fixed exchange rate regime performs relatively better. |
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| No. 324, April 2008 |
| Globalization and Inflation Dynamics: The Impact of Increased Competition |
| Argia M. Sbordone |
| This study analyzes the potential effect of global market competition on inflation dynamics. Using the Calvo model of staggered price-setting, Sbordone modifies the assumption of a constant elasticity of demand to provide a channel through which an increase in the number of traded goods may affect the degree of strategic complementarity in price setting and hence alter the dynamic response of inflation to marginal costs. She discusses the behavior of the variables that drive the impact of trade openness on this response and then evaluates whether an increase in the variety of traded goods of the magnitude observed in the United States in the 1990s might have a significant quantitative impact. The author finds it difficult to argue that such an increase in trade would have generated a sufficiently large increase in U.S. market competition to reduce the slope of the inflation–marginal cost relationship. |
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| No. 325, May 2008 |
| Durable Goods Inventories and the Great Moderation |
| James A. Kahn |
| Kahn revisits the hypothesis that changes in inventory management were an important contributor to volatility reductions during the Great Moderation. He documents how changes in inventory behavior contributed in particular to the stabilization of the U.S. economy within the durable goods sector and develops a model of inventory behavior consistent with the key facts about volatility decline in that sector. The model addresses concerns raised by a number of researchers who criticize the inventory literature’s focus on finished goods inventories, given that stocks of works-in-process and materials are actually larger and more volatile that those of finished goods. The model adapts the stockout-avoidance concept to a production-to-order setting and shows that much of the intuition and many of the results regarding production volatility still apply. |
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