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Policy instrument choice and non-coordinated monetary in interdependent economies

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  • Lombardo, Giovanni
  • Sutherland, Alan

Abstract

Non-coordinated monetary policy is analysed in a stochastic two-country general equilibrium model. Non-coordinated equilibria are compared in two cases: one where policy is set in terms of state-contingent money supply rules and one where policy is set in terms of state-contingent nominal interest rate rules. In general the non-coordinated equilibrium differs between the two types of policy rule but a number of special cases are identified where the equilibria are identical. The endogenous choice of policy instrument is analysed and the Nash equilibrium in the choice of policy instrument is shown to depend on the interest elasticity of money demand. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2004,03.

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Date of creation: 2004
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Handle: RePEc:zbw:bubdp1:1544

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Keywords: Monetary policy; money supply rules; interest rate rules;

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  1. Sutherland, Alan, 2002. "International monetary policy coordination and financial market integration," Working Paper Series, European Central Bank 0174, European Central Bank.
  2. Matthew B. Canzoneri & Dale W. Henderson, 1991. "Monetary Policy in Interdependent Economies: A Game-Theoretic Approach," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031787, December.
  3. Poole, William, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 84(2), pages 197-216, May.
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  8. Maurice Obstfeld & Kenneth Rogoff, 1998. "Risk and Exchange Rates," NBER Working Papers 6694, National Bureau of Economic Research, Inc.
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  10. Benigno, Gianluca & Benigno, Pierpaolo, 2001. "Price Stability as a Nash Equilibrium in Monetary Open-Economy Models," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2757, C.E.P.R. Discussion Papers.
  11. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1131, C.E.P.R. Discussion Papers.
  12. Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad T., 2005. "The need for international policy coordination: what's old, what's new, what's yet to come?," Journal of International Economics, Elsevier, Elsevier, vol. 66(2), pages 363-384, July.
  13. Corsetti, Giancarlo & Pesenti, Paolo, 2002. "International Dimensions of Optimal Monetary Policy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3349, C.E.P.R. Discussion Papers.
  14. Michael Devereux & Charles Engel, 2000. "Monetary Policy in the Open Economy Revisited: Price Setting and Exchange Rate Flexibiity," Discussion Papers in Economics at the University of Washington, Department of Economics at the University of Washington 0016, Department of Economics at the University of Washington.
  15. Giancarlo Corsetti & Paolo Pesenti, 1997. "Welfare and Macroeconomic Interdependence," NBER Working Papers 6307, National Bureau of Economic Research, Inc.
  16. Turnovsky, Stephen J. & d'Orey, Vasco, 1989. "The choice of monetary instrument in two interdependent economies under uncertainty," Journal of Monetary Economics, Elsevier, Elsevier, vol. 23(1), pages 121-133, January.
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