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International monetary co-operation in a world of imperfect information

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  • Tan, Kang Yong

    ()
    (University of Oxford)

  • Tanaka, Misa

    ()
    (Bank of England)

Abstract

This paper examines the welfare implications of international monetary co-operation using a stylised two-country New Keynesian general equilibrium model of imperfect information. We show that setting a self-oriented monetary policy rule generally leads to welfare gains relative to passive monetary policy even when central banks do not have perfect information about the foreign economy. However, information sharing between central banks in this set-up, by itself, has ambiguous welfare implications. Gains from monetary co-ordination are largest when productivity shocks are negatively correlated across countries.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 344.

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Length: 30 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:boe:boeewp:0344

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Keywords: Policy co-ordination; imperfect information; monetary policy; new open economy macroeconomics.;

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  1. Michael Devereux & Charles Engel, 2000. "Monetary Policy in the Open Economy Revisited: Price Setting and Exchange Rate Flexibiity," Discussion Papers in Economics at the University of Washington 0016, Department of Economics at the University of Washington.
  2. Corsetti, Giancarlo & Pesenti, Paolo, 2005. "International dimensions of optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 281-305, March.
  3. Ghosh, Atish R & Masson, Paul R, 1991. "Model Uncertainty, Learning, and the Gains from Coordination," American Economic Review, American Economic Association, vol. 81(3), pages 465-79, June.
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Cited by:
  1. Cristian Ionescu, 2012. "Incomplete Markets and Financial Instability. The Role of Information," Annals of the University of Petrosani, Economics, University of Petrosani, Romania, vol. 12(1), pages 141-150.

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