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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; monetary policy; monetary authorities; inflation; money growth; optimal monetary policy; real money; monetary economics; money balances; monetary cooperation; money supply; international monetary cooperation; monetary policies; price stability; money demand; monetary fund; international monetary policy; monetary policy rules; aggregate demand; domestic monetary policy; monetary balances; terms of trade; national monetary policies; money supplies; nominal variables; domestic monetary policies; price level; price of goods; wage inflation; rate of inflation; central bank; monetary coordination; inflation stabilization; nominal interest rates; nominal interest rate; real wages; rational expectations; real exchange rates;

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    1. Benigno, Pierpaolo, 2001. "Price Stability with Imperfect Financial Integration," CEPR Discussion Papers 2854, C.E.P.R. Discussion Papers.
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    Cited by:
    1. Eric Jondeau & Jean-Guillaume Sahuc, 2008. "Optimal Monetary Policy in an Estimated DSGE Model of the Euro Area with Cross-Country Heterogeneity," International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 23-72, June.
    2. Bastiaan Verhoef, 2006. "Pricing-to-market, sectoral shocks and gains from monetary cooperation," DNB Working Papers 110, Netherlands Central Bank, Research Department.
    3. Michael Evers, 2007. "Optimal Monetary Policy in an Interdependent World," Bonn Econ Discussion Papers bgse10_2007, University of Bonn, Germany.

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