This paper reviews and interprets some of the key policy implications that flow from a class of DSGE models for optimal monetary policy in the open economy. The framework suggests that good macroeconomic outcomes in open economies are possible by focusing inflation targeting that is implemented...

This paper assesses the proximate causes of the post pandemic surge in US inflation, the Federal Reserve's real time reaction to and interpretation of incoming data in 2021, and the pivot to raising rates and shrinking the balance sheet that commenced in 2022 and continues in 2023. Particular...

We examine the factors that account for the returns on currency carry trade strategies. Using a dataset of daily returns spanning 18 years for 5 different long - short currency carry portfolios, we first document a robust empirical relationship between carry trade excess returns and exchange...

We show in a simple -- but robust -- theoretical monetary exchange rate model that the sign of the covariance between an inflation surprise and the nominal exchange rate can tell us something about how monetary policy is conducted. Specifically, we show that 'bad news' about inflation -- that it...

We study the international monetary policy design problem within an optimizing two-country sticky price model, where each country faces a short run tradeoff between output and inflation. The model is sufficiently tractable to solve analytically. We find that in the Nash equilibrium, the policy...

This paper develops a new open economy macro model of optimal monetary for a small open economy. Our main result is that in this model, the optimal policy problem for the small open economy is isomorphic to the closed economy case studied in Clarida, Gali, Gertler (1999). In particular, the...

A large literature suggests that standard exchange rate models cannot outperform a random walk forecast and that the forward rate is not an optimal predictor of the spot rate. However, there is evidence that the term structure of forward premia contains valuable information for forecasting...