Advanced Search
MyIDEAS: Login

The Timing of Asset Trade and Optimal Policy in Dynamic Open Economies

Contents:

Author Info

  • Ozge Senay
  • Alan Sutherland

Abstract

Using a standard open economy DSGE model, it is shown that the timing of asset trade relative to policy decisions has a potentially important impact on the welfare evaluation of monetary policy at the individual country level. If asset trade in the initial period takes place before the announcement of policy, a national pol?icymaker can choose a policy rule which reduces the work effort of households in the policymaker¡¯s country in the knowledge that consumption is fully insured by optimally chosen international portfolio positions. But if asset trade takes place after the policy announcement, this insurance is absent and households in the poli?cymaker¡¯s country bear the full consumption consequences of the chosen policy rule. The welfare incentives faced by national policymakers are very different between the two cases. Numerical examples confirm that asset market timing has a significant impact on the optimal policy rule.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/wp1006.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 1006.

as in new window
Length:
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:san:cdmawp:1006

Contact details of provider:
Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
Phone: 01334 462420
Fax: 01334 462444
Email:
Web page: http://www.st-andrews.ac.uk/cdma
More information through EDIRC

Related research

Keywords: Optimal policy; monetary policy in open economies; international financial markets.;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Devereux, Michael B & Sutherland, Alan, 2007. "Financial Globalization and Monetary Policy," CEPR Discussion Papers 6147, C.E.P.R. Discussion Papers.
  2. Alan Sutherland & Michael B. Devereux, 2007. "Country Portfolio Dynamics," IMF Working Papers 07/283, International Monetary Fund.
  3. Michael B Devereux & Alan Sutherland, 2007. " Country Portfolio Dynamics," CDMA Conference Paper Series 0706, Centre for Dynamic Macroeconomic Analysis.
  4. Clarida, Richard & Gali, Jordi & Gertler, Mark, 2002. "A simple framework for international monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 879-904, July.
  5. Tille, Cédric & van Wincoop, Eric, 2010. "International capital flows," Journal of International Economics, Elsevier, vol. 80(2), pages 157-175, March.
  6. Giancarlo Corsetti & Paolo Pesenti, 2001. "International Dimensions of Optimal Monetary Policy," NBER Working Papers 8230, National Bureau of Economic Research, Inc.
  7. Ester Faia & Tommaso Monacelli, 2008. "Optimal Monetary Policy in a Small Open Economy with Home Bias," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(4), pages 721-750, 06.
  8. Maurice Obstfeld & Kenneth Rogoff, 1996. "Exchange Rate Dynamics Redux," NBER Working Papers 4693, National Bureau of Economic Research, Inc.
  9. Gianluca Benigno & Pierpaolo Benigno, 2003. "Designing targeting rules for international monetary policy cooperation," Working Paper Series 279, European Central Bank.
  10. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Anticipated Ramsey Reforms and the Uniform Taxation Principle: the Role of International Financial Markets," Departmental Working Papers 200210, Rutgers University, Department of Economics.
  11. Senay, Ozge & Sutherland, Alan, 2007. "Optimal monetary policy and the timing of asset trade in open economies," Economics Letters, Elsevier, vol. 95(2), pages 297-302, May.
  12. Wolf Wagner, 2007. "International Risk Sharing and Government Moral Hazard," Open Economies Review, Springer, vol. 18(5), pages 577-598, November.
  13. Kollmann, Robert, 2002. "Monetary policy rules in the open economy: effects on welfare and business cycles," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 989-1015, July.
  14. Michael B. Devereux & Alan Sutherland, 2008. "Country portfolios in open economy macro models," Globalization and Monetary Policy Institute Working Paper 09, Federal Reserve Bank of Dallas.
  15. De Paoli, Bianca, 2009. "Monetary policy and welfare in a small open economy," Journal of International Economics, Elsevier, vol. 77(1), pages 11-22, February.
  16. Bianca De Paoli, 2009. "Monetary Policy under Alternative Asset Market Structures: The Case of a Small Open Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(7), pages 1301-1330, October.
  17. Wagner, W.B., 2007. "International risk sharing and government moral hazard," Open Access publications from Tilburg University urn:nbn:nl:ui:12-193952, Tilburg University.
  18. repec:bla:restud:v:72:y:2005:i:3:p:707-734 is not listed on IDEAS
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Stéphane Auray & Aurélien Eyquem, 2012. "Welfare Reversal in Monetary Union," Working Papers 2012-33, Centre de Recherche en Economie et Statistique.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:san:cdmawp:1006

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bram Boskamp).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.