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Financial Stability in Open Economies

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Listed author(s):
  • Ippei Fujiwara
  • Yuki Teranishi

Abstract

Do financial frictions call for policy cooperation? This paper investigates the implications of financial frictions for monetary policy in the open economy. Welfare analysis shows that there are long-run gains which result from cooperation, but, dynamically, financial frictions per se do not require policy cooperation to improve global welfare over business cycles. In addition, inward-looking financial stability, namely eliminating inefficient fluctuations of loan premiums in its own country, is the optimal monetary policy in the open economy, irrespective of the existence of policy coordination.

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File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2013-10/71_fujiwara_teranishi.pdf
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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2013-71.

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Length: 64 pages
Date of creation: Oct 2013
Handle: RePEc:een:camaaa:2013-71
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Keywords: Sacrifice Ratio; Time-Varying Parameters;

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Find related papers by JEL classification:
  • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
  • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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Cited by:

  1. repec:csg:ajrcwp:06 is not listed on IDEAS
  2. Ippei Fujiwara & Yuki Teranishi, 2009. "Financial Stability in Open Economies," IMES Discussion Paper Series 09-E-09, Institute for Monetary and Economic Studies, Bank of Japan.
  3. 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.
  4. Fujiwara, Ippei & Kam, Timothy & Sunakawa, Takeki, 2015. "Sustainable international monetary policy cooperation," Globalization and Monetary Policy Institute Working Paper 234, Federal Reserve Bank of Dallas.
  5. Bodenstein, Martin & Guerrieri, Luca & LaBriola, Joe, 2014. "Macroeconomic Policy Games," Finance and Economics Discussion Series 2014-87, Board of Governors of the Federal Reserve System (U.S.).

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