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Policy instrument choice and non-coordinated monetary in interdependent economies

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  • Lombardo, Giovanni
  • Sutherland, Alan

Abstract

Non-coordinated monetary policy is analysed in a stochastic two-country general equilibrium model. Non-coordinated equilibria are compared in two cases: one where policy is set in terms of state-contingent money supply rules and one where policy is set in terms of state-contingent nominal interest rate rules. In general the non-coordinated equilibrium differs between the two types of policy rule but a number of special cases are identified where the equilibria are identical. The endogenous choice of policy instrument is analysed and the Nash equilibrium in the choice of policy instrument is shown to depend on the interest elasticity of money demand.

Suggested Citation

  • Lombardo, Giovanni & Sutherland, Alan, 2004. "Policy instrument choice and non-coordinated monetary in interdependent economies," Discussion Paper Series 1: Economic Studies 2004,03, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdp1:1544
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    References listed on IDEAS

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    17. repec:hrv:faseco:34721962 is not listed on IDEAS
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    More about this item

    Keywords

    Monetary policy; money supply rules; interest rate rules;

    JEL classification:

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

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