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Sustainability Of The Friedman Rule In An International Monetary Policy Game

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  • DENNIS W. JANSEN
  • LIQUN LIU
  • MING‐JANG WENG

Abstract

This article develops a two‐country monetary economy model in order to analyze the international monetary policy game between governments and the domestic monetary policy game between each government and its private sector. We prove that if governments can commit to their own private sectors, the cooperative equilibrium of the game between governments is for them to follow the Friedman rule. When governments lack such ability to commit, we find that the Friedman rule is more likely to be sustained in our open‐economy model than in the closed‐economy model of Ireland. (JEL E31, E52, E61)

Suggested Citation

  • Dennis W. Jansen & Liqun Liu & Ming‐Jang Weng, 2007. "Sustainability Of The Friedman Rule In An International Monetary Policy Game," Economic Inquiry, Western Economic Association International, vol. 45(3), pages 470-486, July.
    • Handle: RePEc:bla:ecinqu:v:45:y:2007:i:3:p:470-486
    DOI: 10.1111/j.1465-7295.2007.00043.x
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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