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Implementing international monetary cooperation through inflation targeting

  • Gianluca Benigno
  • Pierpaolo Benigno

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.

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File URL: http://eprints.lse.ac.uk/35633/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 35633.

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Date of creation: 2008
Date of revision:
Publication status: Published in Macroeconomic Dynamics, 2008, 12(s1), pp. 45-59. ISSN: 1365-1005
Handle: RePEc:ehl:lserod:35633
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  1. Woodford, Michael, 2000. "Optimal Monetary Policy Inertia," Seminar Papers 666, Stockholm University, Institute for International Economic Studies.
  2. 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, June.
  3. Michael B. Devereux & Charles Engel, 2000. "Monetary Policy in the Open Economy Revisited: Price Setting and Exchange Rate Flexibility," Working Papers 042000, Hong Kong Institute for Monetary Research.
  4. 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.
  5. V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," NBER Working Papers 7869, National Bureau of Economic Research, Inc.
  6. Persson, Torsten & Tabellini, Guido, 1996. "Monetary Cohabitation in Europe," CEPR Discussion Papers 1380, C.E.P.R. Discussion Papers.
  7. Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers 638, Stockholm - International Economic Studies.
  8. Gianluca Benigno & Pierpaolo Benigno, 2003. "Price Stability in Open Economies," Review of Economic Studies, Oxford University Press, vol. 70(4), pages 743-764.
  9. Obstfeld, Maurice & Rogoff, Kenneth, 2001. "Global Implications of Self-Orientated National Monetary Rules," CEPR Discussion Papers 2856, C.E.P.R. Discussion Papers.
  10. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  11. Benigno, Pierpaolo, 2001. "Optimal Monetary Policy in a Currency Area," CEPR Discussion Papers 2755, C.E.P.R. Discussion Papers.
  12. 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.
  13. Henrik Jensen, . "Targeting Nominal Income Growth or Inflation?," EPRU Working Paper Series 99-23, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  14. Richard Clarida & Jordi Gali & Mark Gertler, 2002. "A Simple Framework for International Monetary Policy Analysis," NBER Working Papers 8870, National Bureau of Economic Research, Inc.
  15. Aoki, Kosuke, 2001. "Optimal monetary policy responses to relative-price changes," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 55-80, August.
  16. Benigno, Gianluca & Benigno, Pierpaolo, 2002. "Implementing Monetary Cooperation Through Inflation Targeting," CEPR Discussion Papers 3226, C.E.P.R. Discussion Papers.
  17. Obstfeld, M., 1998. "Risk and Exchange Rate," Papers 193, Princeton, Woodrow Wilson School - Public and International Affairs.
  18. repec:cup:cbooks:9780521441964 is not listed on IDEAS
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