Stephanie Schmitt-Grohe

A series of publications by Schmitt-Grohe, Jess Benhabib and Martin Uribe between 2001-2002 seek to address what they considered a gap in the current literature on stabilization policy.[12][13] Citing that the current research on monetary policy regimes with interest rate feedback rules lacked in that they only considered local dynamics, meaning small fluctuations around the proposed equilibrium, and that they do not take into account the zero lower bound on nominal interest rates.[14] These simplifications had thus far lead to a single, unique steady state equilibrium, near the targeted inflation rate. Schmitt-Grohe's research deviated mainly in its loosening of these local dynamics and its consideration of a zero lower bound on nominal interest rates. The results of their study confirmed the existence of multiple equilibria; one near the targeted inflation rate as was previously identified; as well as a second equilibrium with zero nominal interest rates and low inflation to mild deflation. This research has taken on importance in the post financial crisis discourse regarding the presence of a liquidity trap and the subsequent historically low interest rates.[15]

In a 2012 paper, Stephanie Schmitt-Grohe and Martin Uribe explore the various issues arising from the system of smaller economies using currency pegs, an exchange rate policy where the smaller country's relative exchange rate is fixed to that of a larger economy.[16] The issues cited arise due to the presence of external shocks, such as a fall in the terms of trade or steep hikes in interest rate premiums which lead to a decrease in aggregate demand, this decrease in aggregate demand must in turn be combated by a decrease in real prices. They state that within contemporary monetary policy, central banks can combat this shock by lowering either the nominal exchange rate or nominal prices. However, the presence of a currency pegging regime rules out devaluations of the nominal exchange rate, therefore central banks must resort to a devaluation of nominal prices. Economies that face downward rigidity on prices however, will experience less effectiveness from monetary policy, with real devaluation taking place slowly. They conclude that economies following a currency pegging system will face between 1.3-7.1% higher unemployment, and between 0.4%-4.8% lower consumption than an economy that follows a free-floating exchange rate regime.[17]

• Uribe, Martín; Schmitt-Grohé, Stephanie (2017). Open Economy Macroeconomics. Princeton University Press. ISBN 978-1-4008-8530-5.

• Benhabib, Jess; Schmitt-Grohé, Stephanie; Uribe, Martín (2002). "Chaotic Interest-Rate Rules". The American Economic Review. 92 (2): 72–78. doi:10.1257/000282802320189032. JSTOR 3083380. SSRN 280088.
• Schmitt-Grohé, Stephanie; Uribe, Martı́n (October 2003). "Closing small open economy models" (PDF). Journal of International Economics. 61 (1): 163–185. doi:10.1016/S0022-1996(02)00056-9.
• Schmitt-Grohé, Stephanie; Uribe, Martı́n (January 2004). "Solving dynamic general equilibrium models using a second-order approximation to the policy function" (PDF). Journal of Economic Dynamics and Control. 28 (4): 755–775. doi:10.1016/S0165-1889(03)00043-5.
• Schmitt-Grohé, Stephanie; Uribe, Martín (October 2004). Optimal Operational Monetary Policy in the Christiano-Eichenbaum-Evans Model of the US Business Cycle (Report). CEPR. CiteSeerX 10.1.1.200.653.
• Ravn, Morten O.; Schmitt-Grohe, Stephanie; Uribe, Martin (2008). Incomplete Cost Pass-Through Under Deep Habits (Report). European University Institute. hdl:1814/7863.