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Macroeconomic policy games

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  • Bodenstein, Martin
  • Guerrieri, Luca
  • LaBriola, Joe

Abstract

We develop a toolbox that characterizes the welfare-maximizing cooperative Ramsey policies under full commitment and open-loop Nash games between policymakers. We adopt the timeless perspective. Two examples for the use of our toolbox offer novel results. The first example revisits the case of monetary policy coordination in a two-country model to highlight sensitivity to the choice of policy instruments. For the second example, a central bank and a macroprudential policymaker are assigned distinct objectives in a model with financial frictions. Lack of cooperation can lead to large welfare losses even if technology shocks are the only source of fluctuations.

Suggested Citation

  • Bodenstein, Martin & Guerrieri, Luca & LaBriola, Joe, 2019. "Macroeconomic policy games," Journal of Monetary Economics, Elsevier, vol. 101(C), pages 64-81.
    • Handle: RePEc:eee:moneco:v:101:y:2019:i:c:p:64-81
    DOI: 10.1016/j.jmoneco.2018.07.015
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    Cited by:

    1. Julio A. Carrillo & Enrique G. Mendoza & Victoria Nuguer & Jessica Roldán-Peña, 2017. "Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies," Working Papers 2017-10, Banco de México.
    2. Ag�nor, Pierre-Richard & Gambacorta, Leonardo & Kharroubi, Enisse & Lombardo, Giovanni & Pereira da Silva, Luiz A., 2017. "The International Dimensions of Macroprudential Policies," CEPR Discussion Papers 12108, C.E.P.R. Discussion Papers.
    3. Victoria Nuguer & Jessica Roldan-Pena & Enrique Mendoza & Julio Carrillo, 2016. "When the Central Bank Meets the Financial Authority: Strategic Interactions and Institutional Design," 2016 Meeting Papers 1461, Society for Economic Dynamics.
    4. Fujiwara, Ippei & Teranishi, Yuki, 2017. "Financial frictions and policy cooperation: A case with monopolistic banking and staggered loan contracts," Journal of International Economics, Elsevier, vol. 104(C), pages 19-43.
    5. Agénor, Pierre-Richard & Jia, Pengfei, 2020. "Capital controls and welfare with cross-border bank capital flows," Journal of Macroeconomics, Elsevier, vol. 65(C).
    6. Rochelle Edge & Nellie Liang, 2017. "New Financial Stability Governance and Central Banks," RBA Annual Conference Volume (Discontinued), in: Jonathan Hambur & John Simon (ed.),Monetary Policy and Financial Stability in a World of Low Interest Rates, Reserve Bank of Australia.
    7. Pierre-Richard Agénor & Luiz Awazu Pereira da Silva, 2019. "Global Banking, Financial Spillovers, and Macroprudential Policy Coordination," BIS Working Papers 764, Bank for International Settlements.
    8. Liutang Gong & Jianjian Liu & Chan Wang & Liyuan Wu & Heng-fu Zou, 2020. "International trade in intermediate inputs and the welfare gains from monetary policy cooperation," CEMA Working Papers 610, China Economics and Management Academy, Central University of Finance and Economics.
    9. Carsten Hefeker & Michael Neugart, 2019. "Policy Coordination Under Model Disagreement and Uncertainty," Open Economies Review, Springer, vol. 30(4), pages 719-737, September.
    10. Patrik Kupkovič, 2017. "Dynamika inflácie v krajinách monetárnej únie: jej vplyv na spoločnú hospodársku politiku [Inflation Dynamics in Countries of the Monetary Union: What is its Impact on the Common Economic Policy?]," Politická ekonomie, Prague University of Economics and Business, vol. 2017(1), pages 62-81.
    11. Fujiwara, Ippei & Kam, Timothy & Sunakawa, Takeki, 2019. "Sustainable international monetary policy cooperation," Journal of Economic Dynamics and Control, Elsevier, vol. 106(C), pages 1-1.
    12. Shigeto Kitano & Kenya Takaku, 2020. "Financial Market Incompleteness and International Cooperation on Capital Controls," Discussion Paper Series DP2020-05, Research Institute for Economics & Business Administration, Kobe University.
    13. Chan, Ying Tung, 2020. "Are macroeconomic policies better in curbing air pollution than environmental policies? A DSGE approach with carbon-dependent fiscal and monetary policies," Energy Policy, Elsevier, vol. 141(C).
    14. Shigeto Kitano & Kenya Takaku, 2019. "Gains from Policy Cooperation in Capital Controls and Financial Market Incompleteness," Discussion Paper Series DP2019-01, Research Institute for Economics & Business Administration, Kobe University.
    15. Grégory LEVIEUGE & Jose David GARCIA REVELO, 2020. "When could macroprudential and monetary policies be in conflict?," LEO Working Papers / DR LEO 2749, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    16. Pierre-Richard Agénor & Timothy P. Jackson & Luiz Pereira da Silva, 2020. "Cross-Border Regulatory Spillovers and Macroprudential Policy Coordination," Working Papers 202028, University of Liverpool, Department of Economics.
    17. Agur, Itai, 2019. "Monetary and macroprudential policy coordination among multiple equilibria," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 192-209.
    18. Daisuke Ikeda, 2020. "Digital Money as a Unit of Account and Monetary Policy in Open Economies," IMES Discussion Paper Series 20-E-15, Institute for Monetary and Economic Studies, Bank of Japan.
    19. Xia, Tian, 2020. "The role of intermediate goods in international monetary cooperation," Journal of International Money and Finance, Elsevier, vol. 100(C).
    20. Pierre-Richard Agénor & Pengfei Jia, 2017. "Macroprudential Policy Coordination in a Currency Union'," Centre for Growth and Business Cycle Research Discussion Paper Series 235, Economics, The Univeristy of Manchester.
    21. Rochelle M. Edge & J. Nellie Liang, 2019. "New Financial Stability Governance Structures and Central Banks," Finance and Economics Discussion Series 2019-019, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    Keywords

    Optimal policy; Strategic interaction; Welfare analysis; Monetary policy cooperation; Macroprudential regulation;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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