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International monetary policy coordination and financial market integration

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  • Alan Sutherland

Abstract

The welfare gains from international coordination of monetary policy are analysed in a two-country model with sticky prices. The gains from coordination are compared under two alternative structures for financial markets: financial autarky and risk sharing. The welfare gains from coordination are found to be largest when there is risk sharing and the elasticity of substitution between home and foreign goods is greater than unity. When there is no risk sharing the gains to coordination are almost zero. It is also shown that the welfare gain from risk sharing can be negative when monetary policy is uncoordinated.

Suggested Citation

  • Alan Sutherland, 2002. "International monetary policy coordination and financial market integration," International Finance Discussion Papers 751, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:751
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    References listed on IDEAS

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    More about this item

    Keywords

    International finance ; International economic integration;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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