The degree of international risk sharing matters for how monetary policy should optimally be conducted in an open economy. This is because risk sharing affects the way in which monetary policy is affected by terms of trade considerations. In a standard two-country model with monopolistic...

We present new empirical evidence on monetary transmission by incorporating two types of shocks -- a standard temporary interest rate shock and a persistent inflation target shock. In an estimated DSGE model under imperfect information, where agents may be unable to distinguish these shocks, we...

Applications in modern macroeconomics increasingly require non-linear solution methods. Our paper studies the consequences of the widely used Calvo pricing mechanism in a non-linear world. We introduce the concept of the stability region as a non-linear counterpart to the determinacy region. We...

Differences in financial systems are often named as a prime candidate for the current state of global imbalances. This paper argues that the process of capital liberalization can explain a substantial fraction of the US net external liabilities. We present a simple two-country model with an...