We reassess the gains from monetary policy coordination within the confines of the canonical NOEM in the light of three issues. First, the literature uses a number of cooperative and non-cooperative equilibrium concepts that do not always clearly distinguish commitment and discretionary outcomes, and in some cases adopts inappropriate concepts. Second, our analysis is welfare based. Moreover, as with much of this literature, we adopt a linear-quadratic approximation of the actual non-linear non-quadratic stochastic optimization problem facing the monetary policymakers. Our second objective then is to re-assess welfare gains using an accurate approximation for such a problem, a feature that for the most part is lacking in previous studies. Finally, we examine the issue where the monetary authority is restricted to rules that are operational in two senses: first, the zero lower bound constraint is imposed on the optimal rule and second, we study simple Taylor-type commitment rules that unlike fully optimal rules are easily monitored by the public.
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Find related papers by JEL classification: E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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