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Financial globalization and monetary policy

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  • Devereux, Michael B.
  • Sutherland, Alan

Abstract

Recent data show substantial increases in the size of gross external asset and liability positions. The implications of these developments for optimal conduct of monetary policy are analyzed in a standard open economy model which is augmented to allow for endogenous portfolio choice. The model shows that monetary policy takes on new importance due to its impact on nominal asset returns. Nevertheless, the case for price stability as an optimal monetary rule remains. In fact, it is reinforced. Even without nominal price rigidities, price stability is optimal because it enhances the risk sharing properties of nominal bonds.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 55 (2008)
Issue (Month): 8 (November)
Pages: 1363-1375

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Handle: RePEc:eee:moneco:v:55:y:2008:i:8:p:1363-1375

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Web page: http://www.elsevier.com/locate/inca/505566

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Keywords: Portfolio choice International risk sharing Exchange rate;

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References

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  1. Devereux, Michael B & Sutherland, Alan, 2007. "Financial Globalization and Monetary Policy," CEPR Discussion Papers 6147, C.E.P.R. Discussion Papers.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. International Risk Sharing: Through Equity Diversification or Exchange Rate Hedging?
    by Martin Berka in NEP-OPM blog on 2009-10-28 01:07:50
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Senay, Ozge & Sutherland, Alan, 2010. "The Timing of Asset Trade and Optimal Policy in Dynamic Open Economies," SIRE Discussion Papers 2010-60, Scottish Institute for Research in Economics (SIRE).
  2. Yamin Ahmad & Ming Chien Lo & Olena Mykhaylova, 2011. "Volatility and Persistence of Simulated DSGE Real Exchange Rates," Working Papers 11-01, UW-Whitewater, Department of Economics, revised Nov 2012.
  3. Nicolas Coeurdacier & Hélène Rey, 2013. "Home Bias in Open Economy Financial Macroeconomics," Journal of Economic Literature, American Economic Association, vol. 51(1), pages 63-115, March.
  4. Enrique Martinez-Garcia, 2008. "Globalization and monetary policy: an introduction," Globalization and Monetary Policy Institute Working Paper 11, Federal Reserve Bank of Dallas.
  5. Devereux, Michael B. & Sutherland, Alan, 2008. "Financial globalization and monetary policy," Discussion Paper Series 1: Economic Studies 2008,20, Deutsche Bundesbank, Research Centre.
  6. Nicolas Coeurdacier, 2012. "The international taxation of capital," 2012 Meeting Papers 440, Society for Economic Dynamics.
  7. Serletis, Apostolos & Malliaris, Anastasios & Hinich, Melvin & Gogas, Periklis, 2010. "Episodic Nonlinearity in Leading Global Currencies," DUTH Research Papers in Economics 3-2010, Democritus University of Thrace, Department of International Economic Relations and Development.
  8. Bodenstein, Martin, 2011. "Closing large open economy models," Journal of International Economics, Elsevier, vol. 84(2), pages 160-177, July.

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