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Designing targeting rules for international monetary policy cooperation

Listed author(s):
  • Benigno, Gianluca
  • Benigno, Pierpaolo

This study analyses international monetary policy cooperation in a two country dynamic general equilibrium model with nominal rigidities, monopolistic competition and producer currency pricing. A quadratic approximation to the utility of the consumers is derived and assumed as the policy objective function of the policy-makers. It is shown that only under special conditions there are no gains from cooperation and moreover that the paths of the exchange rate and prices in the constrained-efficient solution depend on the kind of disturbance that affects the economy. It might be the case either for fixed or floating exchange rates. Despite this result, simple targeting rules that involve only targets for the growth of output and for both domestic GDP and CPI inflation rates can replicate the cooperative allocation. JEL Classification: E52, F41, F42

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 53 (2006)
Issue (Month): 3 (April)
Pages: 473-506

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Handle: RePEc:eee:moneco:v:53:y:2006:i:3:p:473-506
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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