Current Account Dynamics and Monetary Policy ∗

  title={Current Account Dynamics and Monetary Policy ∗},
  author={Andrea Ferrero and Mark Gertler and Lars E. O. Svensson},
We explore the implications of current account adjustment for monetary policy within a simple twocountry DSGE model. Our framework nests Obstfeld and Rogoff's (2005) static model of exchange rate responsiveness to current account reversals. It extends this approach by endogenizing the dynamic adjustment path and by incorporating production and nominal price rigidities in order to study the role of monetary policy. We consider two different adjustment scenarios. The first is a "slow burn" where… CONTINUE READING
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