IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/35633.html
   My bibliography  Save this paper

Implementing international monetary cooperation through inflation targeting

Author

Listed:
  • Benigno, Gianluca
  • Benigno, Pierpaolo

Abstract

This paper presents a two-country dynamic general equilibrium model with imperfect competition and nominal price rigidities in which productivity shocks coexist with markup shocks. After analyzing the features of the optimal cooperative solution, we show that this allocation can be implemented in a strategic context through inflation-targeting regimes. Under these regimes, each monetary authority minimizes a quadratic loss function that targets only domestic targets, namely, GDP inflation and the output gap.

Suggested Citation

  • Benigno, Gianluca & Benigno, Pierpaolo, 2008. "Implementing international monetary cooperation through inflation targeting," LSE Research Online Documents on Economics 35633, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:35633
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/35633/
    File Function: Open access version.
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
    2. Currie,David & Levine,Paul, 2009. "Rules, Reputation and Macroeconomic Policy Coordination," Cambridge Books, Cambridge University Press, number 9780521104609.
    3. Svensson, Lars E. O., 2002. "Inflation targeting: Should it be modeled as an instrument rule or a targeting rule?," European Economic Review, Elsevier, vol. 46(4-5), pages 771-780, May.
    4. V. V Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 533-563.
    5. Benigno, Gianluca & Benigno, Pierpaolo, 2006. "Designing targeting rules for international monetary policy cooperation," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 473-506, April.
    6. Persson, Torsten & Tabellini, Guido, 1996. "Monetary Cohabitation in Europe," American Economic Review, American Economic Association, vol. 86(2), pages 111-116, May.
    7. Clarida, Richard & Gali, Jordi & Gertler, Mark, 2002. "A simple framework for international monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 879-904, July.
    8. Maurice Obstfeld & Kenneth Rogoff, 2002. "Global Implications of Self-Oriented National Monetary Rules," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 503-535.
    9. Benigno, Pierpaolo, 2004. "Optimal monetary policy in a currency area," Journal of International Economics, Elsevier, vol. 63(2), pages 293-320, July.
    10. Obstfeld, M., 1998. "Risk and Exchange Rate," Papers 193, Princeton, Woodrow Wilson School - Public and International Affairs.
    11. Michael Woodford, 1999. "Optimal monetary policy inertia," Proceedings, Federal Reserve Bank of San Francisco.
    12. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
    13. Michael B. Devereux & Charles Engel, 2003. "Monetary Policy in the Open Economy Revisited: Price Setting and Exchange-Rate Flexibility," Review of Economic Studies, Oxford University Press, vol. 70(4), pages 765-783.
    14. Henrik Jensen, 2002. "Targeting Nominal Income Growth or Inflation?," American Economic Review, American Economic Association, vol. 92(4), pages 928-956, September.
    15. Alan Sutherland, 2005. "Cost-push shocks and monetary policy in open economies," Oxford Economic Papers, Oxford University Press, vol. 57(1), pages 1-33, January.
    16. Benigno, Gianluca & Benigno, Pierpaolo, 2002. "Implementing Monetary Cooperation Through Inflation Targeting," CEPR Discussion Papers 3226, C.E.P.R. Discussion Papers.
    17. Gianluca Benigno & Pierpaolo Benigno, 2003. "Price Stability in Open Economies," Review of Economic Studies, Oxford University Press, vol. 70(4), pages 743-764.
    18. 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, January.
    19. Aoki, Kosuke, 2001. "Optimal monetary policy responses to relative-price changes," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 55-80, August.
    20. repec:hrv:faseco:34721962 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Michael Woodford, 2007. "Globalization and Monetary Control," NBER Chapters,in: International Dimensions of Monetary Policy, pages 13-77 National Bureau of Economic Research, Inc.
    2. Bilbiie, Florin O., 2014. "Delegating optimal monetary policy inertia," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 63-78.
    3. Rose, Andrew K, 2006. "A Stable International Monetary System Emerges: Bretton Woods, Reversed," CEPR Discussion Papers 5854, C.E.P.R. Discussion Papers.
    4. Bullard, James & Singh, Aarti, 2008. "Worldwide macroeconomic stability and monetary policy rules," Journal of Monetary Economics, Elsevier, vol. 55(Supplemen), pages 34-47, October.
    5. Anna Lipińska & Morten Spange & Misa Tanaka, 2011. "International Spillover Effects and Monetary Policy Activism," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(8), pages 1735-1748, December.
    6. Rose, Andrew K., 2007. "A stable international monetary system emerges: Inflation targeting is Bretton Woods, reversed," Journal of International Money and Finance, Elsevier, vol. 26(5), pages 663-681, September.
    7. Okano, Eiji, 2014. "How important is fiscal policy cooperation in a currency union?," Journal of Economic Dynamics and Control, Elsevier, vol. 38(C), pages 266-286.
    8. Forlati, Chiara, 2015. "On the benefits of a monetary union: Does it pay to be bigger?," Journal of International Economics, Elsevier, vol. 97(2), pages 448-463.
    9. Evers, Michael P., 2013. "Strategic monetary policy in interdependent economies: Gains from coordination reconsidered," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 360-376.
    10. Fabio Milani, 2009. "The Effect of Global Output on U.S. Inflation and Inflation Expectations: A Structural Estimation," Working Papers 080920, University of California-Irvine, Department of Economics.

    More about this item

    Keywords

    international monetary cooperation; inflation targeting;

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:35633. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LSERO Manager). General contact details of provider: http://edirc.repec.org/data/lsepsuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.