Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/48459
Authors: 
Bofinger, Peter
Mayer, Eric
Wollmershäuser, Timo
Hülsewig, Oliver
Year of Publication: 
2003
Series/Report no.: 
Würzburg economic papers 34
Abstract: 
While the IS/LM-AS/AD model is still the central tool of macroeconomic teaching it has been criticised by several economists. The model is unable to deal with a monetary policy that uses the interest rate as its operating target ( Romer [2000]). Walsh [2002] has criticised that it is not suited for an analysis of inflation targeting. We present the BMW model as an alternative framework, which develops the Romer approach into a simple macroeconomic model. It can deal with issues like inflation targeting, monetary policy rules, and central bank credibility. Our open-economy version is a powerful alternative to the IS/LM-based Mundell-Fleming (MF) model. The main advantage of the open-economy BMW model is its ability to discuss the role of inflation and the determination of flexible exchange rates while the MF model is based on fixed prices and constant exchange rates.
Subjects: 
monetary policy
inflation targeting
optimal interest rate rules
simple rules
managed floating
IS/LM
Mundell-Fleming
JEL: 
A20
E10
E50
F41
Document Type: 
Working Paper

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