International monetary policy coordination and financial market integration
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.
File(s): File format is application/pdf http://www.federalreserve.gov/pubs/ifdp/2002/751/ifdp751.pdf
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Part of Series: International Finance Discussion Papers
Publication Date: 2002