Are there additional objectives for monetary policy in a global environment?
An interesting question is whether the increased openness of the U.S. and other economies suggests new objectives for domestic monetary policies. It is certainly true that increased globalization has encouraged a proliferation of information-sharing exercises around the world and some increased attention to the coordination of policies across counties. I will comment on this briefly below. Let’s start with objectives appropriate in the closed economy context. Congress has set dual objectives for monetary policy in the Federal Reserve Act: price stability and full employment. These objectives relate directly to the performance of the domestic economy and they are also objectives that monetary policy has the ability to pursue in the closed economy setting. The first question is whether the open economy environment reduces the ability of domestic monetary policy to achieve these objectives. I have argued that globalization has not reduced the ability of countries with flexible exchange ra
