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Macroeconomic Coordination and Inflation Targeting in a Two-Country Model

  • Eui Jung Chang
  • Marcelo Kfoury Muinhos
  • Joanílio Rodolpho Teixeira

This paper deals with a macroeconomic coordination and its stabilization within a new Keynesian framework. The dynamic treatment of a twocountry model is made by simulation, using the linear quadratic algorithm. We compare the optimal monetary policy rule for three types of equilibria: macroeconomic coordination, Nash and Stackelberg, using parameters that reflect the relative size and degree of openness of the economies. Under the strict inflation target, we obtain higher output and inflation volatilities due to each economy's reaction to the other country's policy. The only exception is the case of optimal macroeconomic coordination rules. This dynamic model finds that macroeconomic coordination policy is better than non-coordination rules, supporting the traditional result found in static models.

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File URL: http://www.bcb.gov.br/pec/wps/ingl/wps50.pdf
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Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 50.

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Date of creation: Sep 2002
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Handle: RePEc:bcb:wpaper:50
Contact details of provider: Web page: http://www.bcb.gov.br/?english

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  1. Sandro Canesso de Andrade & Benjamin Miranda Tabak, 2001. "Is it Worth Tracking Dollar/Real Implied Volatility?," Working Papers Series 15, Central Bank of Brazil, Research Department.
  2. Marco Antonio Bonomo & Ricardo D. Brito, 2001. "Regras Monetárias e Dinâmica Macroeconômica no Brasil: Uma Abordagem de Expectativas Racionais," Working Papers Series 28, Central Bank of Brazil, Research Department.
  3. Benjamin Miranda Tabak & Sandro Canesso de Andrade, 2001. "Testing the Expectations Hypothesis in the Brazilian Term Structure of Interest Rates," Working Papers Series 30, Central Bank of Brazil, Research Department.
  4. Paulo Coutinho & Benjamin Miranda Tabak, 2001. "Decentralized Portfolio Management," Working Papers Series 22, Central Bank of Brazil, Research Department.
  5. Francisco Marcos R. Figueiredo & Roberta Blass Staub, 2001. "Algumas Considerações Sobre a Sazonalidade no IPCA," Working Papers Series 31, Central Bank of Brazil, Research Department.
  6. Emanuel-Werner Kohlscheen, 2000. "Estimating Exchange Market Pressure and Intervention Activity," Working Papers Series 9, Central Bank of Brazil, Research Department.
  7. Marcelle Chauvet, 2000. "Leading Indicators of Inflation for Brazil," Working Papers Series 7, Central Bank of Brazil, Research Department.
  8. Marcelo Kfoury Muinhos & Sérgio Afonso Lago Alves & Gil Riella, 2002. "Modelo Estrutural com Setor Externo: Endogenização do Prêmio de Risco e do Câmbio," Working Papers Series 42, Central Bank of Brazil, Research Department.
  9. repec:fgv:epgrbe:v:58:n:4:a:3 is not listed on IDEAS
  10. Francisco Marcos Rodrigues Figueiredo, 2001. "Evaluating Core Inflation Measures for Brazil," Working Papers Series 14, Central Bank of Brazil, Research Department.
  11. Pedro H. Albuquerque, 2001. "Os Impactos Econômicos da CPMF: Teoria e Evidência," Working Papers Series 21, Central Bank of Brazil, Research Department.
  12. Victorio Y. T. Chu & Márcio I. Nakane, 2001. "Credit Channel without the LM Curve," Working Papers Series 20, Central Bank of Brazil, Research Department.
  13. Eduardo Lundberg, 2000. "Monetary Policy and Banking Supervision Functions on the Central Bank," Working Papers Series 2, Central Bank of Brazil, Research Department.
  14. Pedro H. Albuquerque, 2000. "An Information Theory Approach to the Aggregation of Log-Linear Models," Working Papers Series 4, Central Bank of Brazil, Research Department.
  15. Mauro Costa Miranda, 2001. "Crises Cambiais e Ataques Especulativos no Brasil," Working Papers Series 32, Central Bank of Brazil, Research Department.
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