The Case for Price Stability with a Flexible Exchange Rate in the New Neoclassical Synthesis (Report)
The Cato Journal, 2008, Spring-Summer, 28, 2
The Cato Journal
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The New Neoclassical Synthesis is a natural starting point for the consideration of welfare-maximizing monetary arrangements in the international context. Alternatively known as the New Keynesian model, this consensus model of monetary policy deserves our attention because it embodies cumulative advances in theory and policy informed by decades of monetary experience from around the world. The consensus model with its prescription for price stability serves today as the foundation for thinking about monetary policy at central banks and universities worldwide. (1) The purpose of the article is to review the fundamental principles of monetary policy in terms of the New Synthesis. The first section describes briefly the structure of the baseline NNS model. The second section presents the ease for price stability in the NNS model. The third section extends the discussion to the open economy and presents the NNS case for a flexible exchange rate. The fourth section tells why monetary policy is fragile that simultaneously attempts to fix the foreign exchange rate and pursue interest rate policy to sustain price stability.
- 2,99 €
- Category: Politics & Current Affairs
- Published: 22 March 2008
- Publisher: Cato Institute
- Print Length: 10 Pages
- Language: English