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The Gains From International Monetary Cooperation Revisited

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  • Ivan Tchakarov

Abstract

This paper examines the issue of whether countries can improve their welfare by coordinating macroeconomic policies. The main purpose is to compute the gains from international monetary cooperation as the difference between the steady state consumption levels associated with the Nash and the cooperative outcomes of the game in which monetary authorities pursue active monetary policy. A numerical second-order approximation makes the solution of the model possible. Contrary to Obstfeld and Rogoff (2002), who claim that the gains from international cooperation in monetary policy are negligible, the paper finds that they could be very significant and reach as high as 2.2 percent of steady state consumption. This suggests that individual countries could experience significant welfare losses if they concentrate only on domestic stabilization policies.

Suggested Citation

  • Ivan Tchakarov, 2004. "The Gains From International Monetary Cooperation Revisited," IMF Working Papers 04/1, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:04/1
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=17039
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    References listed on IDEAS

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    1. Pierpaolo Benigno, 2009. "Price Stability with Imperfect Financial Integration," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 121-149, February.
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    Cited by:

    1. Eric Jondeau & Jean-Guillaume Sahuc, 2008. "Optimal Monetary Policy in an Estimated DSGE Model of the Euro Area with Cross-Country Heterogeneity," International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 23-72, June.
    2. Michael Evers, 2007. "Optimal Monetary Policy in an Interdependent World," Bonn Econ Discussion Papers bgse10_2007, University of Bonn, Germany.
    3. Bastiaan Verhoef, 2006. "Pricing-to-market, sectoral shocks and gains from monetary cooperation," DNB Working Papers 110, Netherlands Central Bank, Research Department.

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