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International Monetary Policy Coordination and Financial Market Integration

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  • Sutherland, Alan

Abstract

This Paper analyses the implications of financial market structure for the existence and size of welfare gains from international monetary policy coordination. Policy coordination is analysed in a two-country stochastic general equilibrium model simple enough to yield explicit analytical solutions. Welfare gains from coordination are found to be largest when: the elasticity of substitution between home and foreign goods differs from unity; international markets in state-contingent assets allow full consumption risk sharing; and asset trade takes place before monetary policy rules are determined. Welfare gains are found to be much smaller when there are no international financial markets.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4251.

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Date of creation: Feb 2004
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Handle: RePEc:cpr:ceprdp:4251

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Keywords: financial integration; monetary policy coordination; risk sharing;

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References

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