Monetary Policy, Determinacy, and Learnability in a Two‐Block World Economy

Abstract

We study how determinacy and learnability of worldwide rational expectations equilibrium may be affected by monetary policy in a simple, two‐country, New Keynesian framework under both fixed and flexible exchange rates. We find that open economy considerations may alter conditions for determinacy and learnability relative to closed economy analyses and that new concerns can arise in the analysis of classic topics such as the desirability of exchange rate targeting and monetary policy cooperation.

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