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Optimal Monetary Policy and Sectoral Shocks: Is International Monetary Cooperation Beneficial?

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  • Wolfram Berger

Abstract

A stochastic general‐equilibrium model is used to explore the welfare effects of optimal monetary policy and the potential benefits of policy coordination. Cross‐country perfectly symmetric shocks in the traded goods sectors and imperfectly correlated shocks in the non‐traded goods sectors are considered. In this set‐up, monetary policy may not be able to achieve efficient sectoral resource allocations within countries and avoid inefficient relative price changes across countries. Welfare gains from coordination are sizable if the shocks to the traded and non‐traded goods sectors are negatively correlated and both sectors are of roughly equal size.

Suggested Citation

  • Wolfram Berger, 2007. "Optimal Monetary Policy and Sectoral Shocks: Is International Monetary Cooperation Beneficial?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(2), pages 267-290, June.
    • Handle: RePEc:bla:scandj:v:109:y:2007:i:2:p:267-290
    DOI: 10.1111/j.1467-9442.2007.00494.x
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    References listed on IDEAS

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    1. Alan Sutherland, 2002. "International monetary policy coordination and financial market integration," International Finance Discussion Papers 751, Board of Governors of the Federal Reserve System (U.S.).
    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.
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    Cited by:

    1. Craighead, William D., 2024. "Exchange rates and monetary policy when tradable and nontradable goods are complements," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 297-309.
    2. Bastiaan Verhoef, 2006. "Pricing-to-market, sectoral shocks and gains from monetary cooperation," DNB Working Papers 110, Netherlands Central Bank, Research Department.
    3. William Craighead, 2012. "Specific Factors and International Monetary Policy Coordination," Open Economies Review, Springer, vol. 23(2), pages 319-336, April.

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