Global Dimensions of US Monetary Policy

Maurice Obstfeld

No WP19-16, Working Paper Series from Peterson Institute for International Economics

Abstract: This paper is a partial exploration of mechanisms through which global factors influence the tradeoffs that US 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 US economy from the disproportionate impact of US 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; natural rate of interest; Phillips curve; current account; capital flows; policy spillbacks (search for similar items in EconPapers)
JEL-codes: E52 F32 F41 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
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Citations: View citations in EconPapers (18)

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