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The Gains from International Monetary Cooperation Revisited

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  • Ivan Tchakarov
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    Abstract

    This paper examines the issue of whether countries can improve their welfare by coordinating macroeconomic policies. The main purpose is to compute the gains from international monetary cooperation as the difference between the steady state consumption levels associated with the Nash and the cooperative outcomes of the game in which monetary authorities pursue active monetary policy. A numerical second-order approximation makes the solution of the model possible. Contrary to Obstfeld and Rogoff (2002), who claim that the gains from international cooperation in monetary policy are negligible, the paper finds that they could be very significant and reach as high as 2.2 percent of steady state consumption. This suggests that individual countries could experience significant welfare losses if they concentrate only on domestic stabilization policies.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=17039
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/1.

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    Length: 46
    Date of creation: 01 Jan 2004
    Date of revision:
    Handle: RePEc:imf:imfwpa:04/1

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    Related research

    Keywords: International cooperation;

    This paper has been announced in the following NEP Reports:

    References

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    1. Pierpaolo Benigno, 2008. "Price stability with imperfect financial integration," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:
    1. Michael Evers, 2007. "Optimal Monetary Policy in an Interdependent World," Bonn Econ Discussion Papers bgse10_2007, University of Bonn, Germany.
    2. Jondeau, E. & Sahuc, J-G., 2006. "Optimal Monetary Policy in an Estimated DSGE Model of the Euro Area with Cross-country Heterogeneity," Working papers 141, Banque de France.
    3. Bastiaan Verhoef, 2006. "Pricing-to-market, sectoral shocks and gains from monetary cooperation," DNB Working Papers 110, Netherlands Central Bank, Research Department.

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