Global Dimensions of U.S. Monetary Policy

Maurice Obstfeld

No 13887, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper is a partial exploration of mechanisms through which global factors influence the tradeoffs that U.S. monetary policy faces. It considers three main channels. The first is the determination of domestic inflation in a context where international prices and global competition play a role, alongside domestic slack and inflation expectations. The second channel is the determination of asset returns (including the natural real safe rate of interest, r∗) and financial conditions, given integration with global financial markets. The third channel, which is particular to the United States, is the potential spillback onto the U.S. economy from the disproportionate impact of U.S. monetary policy on the outside world. In themselves, global factors need not undermine a central bank's ability to control the price level over the long term -- after all, it is the monopoly issuer of the numeraire in which domestic prices are measured. Over shorter horizons, however, global factors do change the tradeoff between price-level control and other goals such as low unemployment and financial stability, thereby affecting the policy cost of attaining a given price path.

Keywords: Monetary policy; Open-economy phillips curve; Natural real interest rate; Financial conditions; Current account; Spillbacks (search for similar items in EconPapers)
JEL-codes: E52 E58 F36 F41 G15 (search for similar items in EconPapers)
Date: 2019-07
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Global Dimensions of U.S. Monetary Policy (2020)
Working Paper: Global Dimensions of US Monetary Policy (2019)
Working Paper: Global Dimensions of U.S. Monetary Policy (2019)
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