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The effect of real money balances on international monetary policy transmission

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  • Ida, Daisuke

Abstract

This study examines the effect of real money balances on monetary policy in a two-country new Keynesian model. To accomplish this, the nonseparable utility function between consumption and real money balances is considered in the model. We demonstrate how a change in the money aggregate impacts the international spillover of quantitative easing (QE). This paper shows that whether the degree of the nonseparability parameter impacts international monetary policy spillover depends on the presence of zero lower bounds (ZLB) on nominal interest rates. This paper addresses that when the home and foreign countries face the ZLB, a foreign QE shock might cause a beggar-thy-neighbor effect on the home country.

Suggested Citation

  • Ida, Daisuke, 2023. "The effect of real money balances on international monetary policy transmission," Journal of International Money and Finance, Elsevier, vol. 139(C).
    • Handle: RePEc:eee:jimfin:v:139:y:2023:i:c:s0261560623001651
    DOI: 10.1016/j.jimonfin.2023.102964
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    Cited by:

    1. Ida, Daisuke, 2024. "The neo-Fisherian effect in a new Keynesian model with real money balances," MPRA Paper 120575, University Library of Munich, Germany.

    More about this item

    Keywords

    Quantitative easing; Monetary policy rules; Money demand function; Two-country model; Zero lower bounds on nominal interest rates;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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