The BMW model: A new framework for teaching monetary macroeconomics in closed and open economies

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: W.E.P. - Würzburg Economic Papers ; No. 34

Classification and Topics

• Classification: Wirtschaft ; Economic Education and Teaching of Economics: General ; General Aggregative Models: General ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General ; Open Economy Macroeconomics
• Subject: monetary policy ; inflation targeting ; optimal interest rate rules ; simple rules ; managed floating ; IS/LM ; Mundell-Fleming ; Makroökonomik ; Geldtheorie ; Offene Volkswirtschaft ; Wirtschaftsstudium ; Theorie ; Mundell-Fleming-Modell

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bofinger, Peter ; Mayer, Eric ; Wollmershäuser, Timo ; Hülsewig, Oliver
• Event: Veröffentlichung
• (who): University of Würzburg, Department of Economics
• (where): Würzburg
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/48459
• Last update: 10.03.2025, 11:43 AM CET