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dc.contributor.authorBofinger, Peteren
dc.contributor.authorMayer, Ericen
dc.contributor.authorWollmershäuser, Timoen
dc.date.accessioned2011-07-18T15:03:59Z-
dc.date.available2011-07-18T15:03:59Z-
dc.date.issued2002-
dc.identifier.urihttp://hdl.handle.net/10419/48477-
dc.description.abstractWhile the IS/LM-AS/AD model is still the central tool of macroeconomic teaching in most macroeconomic textbooks, it has been criticised by several economists. Colander [1995] has demonstrated that the framework is logically inconsistent, Romer [2000] has shown that it is unable to deal with a monetary policy that uses the interest rate as its operating target, Walsh [2001] has criticised that it is not well suited for an analysis of inflation targeting. In our paper we start with a short discussion of the main flaws of the IS/LM-AS/AD model. We present the BMW model as an alternative framework, which develops the Romer approach into a very simple, but comprehensive macroeconomic model. In spite of its simplicity it can deal with issues like inflation targeting, monetary policy rules, and central bank credibility. We extend the model to an open-economy version as 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. This working paper is an extended and more theoretical version of Würzburg Economic Paper No. 34. Besides describing the derivation of optimal interest rate rules and the concept of loss functions more in detail, it also discusses simple interest rate rules in an open economy as well as a strategy of managed floating within the same theoretical framework. Additionally, we explore the stabilizing properties of simple interest rate rules.en
dc.language.isoengen
dc.publisher|aUniversity of Würzburg, Department of Economics |cWürzburgen
dc.relation.ispartofseries|aW.E.P. - Würzburg Economic Papers |x35en
dc.subject.jelA2en
dc.subject.jelE1en
dc.subject.jelE5en
dc.subject.jelF41en
dc.subject.ddc330en
dc.subject.keywordmonetary policyen
dc.subject.keywordinflation targetingen
dc.subject.keywordoptimal interest rate rulesen
dc.subject.keywordsimple rulesen
dc.subject.keywordmanaged floatingen
dc.subject.keywordIS/LMen
dc.subject.keywordMundell-Flemingen
dc.titleThe BMW model: Simple macroeconomics for closed and open economies a requiem for the IS/LM-AS/AD and the Mundell-Fleming model-
dc.typeWorking Paperen
dc.identifier.ppn570611326en
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen
dc.identifier.repecRePEc:zbw:wuewep:35en

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