Credibility and Commitment of Monetary Policy in Open Economies
Abstract
In this paper we study the delegation of monetary policy to independent central bankers in a two country world with monetary spill-overs. The paper shows that under imperfect commitment and private information of the Central Bankers about their objectives the optimal degree of commitment depends on the correlation structure of the shock hitting the economies. When the correlation of the shocks across countries is negative, as when the variance to output depends mainly on shocks to the terms of trade, there exist strategic complementarity in the optimal degree of commitment. When the correlation of shocks is positive (common technological or demand shocks) there exist strategic substitutability. These result may provide rationale for the simultaneous increasing attention to the institutional solution to the credibility problem in monetary policy in most advanced countries in the last decades.Download Info
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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 47.Length:
Date of creation: 01 Sep 2000
Date of revision:
Publication status: Published in European Journal of Political Economy, 2003, vol. 21, pages 872-902
Handle: RePEc:sef:csefwp:47
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Keywords: monetary policy delegation; central bankers; private information; strategic interaction;Other versions of this item:
- D'Amato, Marcello & Martina, Riccardo, 2005. "Credibility and commitment of monetary policy in open economies," European Journal of Political Economy, Elsevier, vol. 21(4), pages 872-902, December.
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-11-05 (All new papers)
- NEP-CBA-2001-11-05 (Central Banking)
- NEP-MON-2001-11-05 (Monetary Economics)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Berger, Helge & Nitsch, Volker & Lybek, Tonny, 2008.
"Central Bank boards around the world: why does membership size differ?,"
Discussion Papers
2008/5, Free University Berlin, School of Business & Economics.
- Berger, Helge & Nitsch, Volker & Lybek, Tonny, 2008. "Central bank boards around the world: Why does membership size differ?," European Journal of Political Economy, Elsevier, vol. 24(4), pages 817-832, December.
- Helge Berger & Tonny Lybek & Volker Nitsch, 2006. "Central Bank Boards Around the World: Why Does Membership Size Differ?," IMF Working Papers 06/281, International Monetary Fund.
- Nitsch, Volker & Berger, Helge & Lybek, Tonny, 2008. "Central Bank Boards around the World: Why Does Membership Size Differ?," Publications of Darmstadt Technical University, Institute of Economics (VWL) 34446, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
- Helge Berger & Volker Nitsch & Tonny Lybek, 2007. "Central Bank Boards around the World: Why does Membership Size Differ?," CESifo Working Paper Series 1897, CESifo Group Munich.
- Marcello D'Amato & Barbara Pistoresi & Francesco Salsano, 2009. "On the determinants of Central Bank independence in open economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 14(2), pages 107-119.
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