Portfolio Preference Uncertainty and Gains from Policy Coordination
AbstractInternational policy coordination is generally considered to be made less likely--and less profitable--by uncertainty about how the economy works. This paper offers a counter example, in which investors' increased uncertainty about portfolio preference makes coordination more beneficial. Without such coordination, monetary authorities may respond to financial market uncertainty by not fully accommodating demands for increased liquidity, for fear of inducing exchange rate depreciation. Coordinated monetary expansion would minimize this danger. This result is formalized in a model incorporating an equity market; then, the stock market crash of October 1987 and its implications for monetary policy coordination are discussed.
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.
Volume (Year): 39 (1992)
Issue (Month): 1 (March)
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Other versions of this item:
- Paul R. Masson, 1991. "Portfolio Preference Uncertainty and Gains from Policy Coordination," IMF Working Papers 91/64, International Monetary Fund.
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F31 - International Economics - - International Finance - - - Foreign Exchange
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- Barrell, Ray & Dury, Karen & Hurst, Ian, 2003. "International monetary policy coordination: an evaluation using a large econometric model," Economic Modelling, Elsevier, vol. 20(3), pages 507-527, May.
- Peter Mooslechner & Martin Schuerz, 1999. "International Macroeconomic Policy Coordination: Any Lessons for EMU? A Selective Survey of the Literature," Empirica, Springer, vol. 26(3), pages 171-199, September.
- Owyong, David T., 2001. "Inflationary finance, capital mobility, and monetary coordination," International Review of Economics & Finance, Elsevier, vol. 10(4), pages 369-382, December.
- Yiyong Cai & Warwick J. McKibbin, 2013. "Uncertainty and International Climate Change Negotiations," CAMA Working Papers 2013-13, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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