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International Monetary Policy Coordination and Financial Market Integration

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  • Sutherland, Alan

Abstract

This Paper analyses the implications of financial market structure for the existence and size of welfare gains from international monetary policy coordination. Policy coordination is analysed in a two-country stochastic general equilibrium model simple enough to yield explicit analytical solutions. Welfare gains from coordination are found to be largest when: the elasticity of substitution between home and foreign goods differs from unity; international markets in state-contingent assets allow full consumption risk sharing; and asset trade takes place before monetary policy rules are determined. Welfare gains are found to be much smaller when there are no international financial markets.

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  • Sutherland, Alan, 2004. "International Monetary Policy Coordination and Financial Market Integration," CEPR Discussion Papers 4251, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4251
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    More about this item

    Keywords

    Monetary policy coordination; Financial integration; Risk sharing;
    All these keywords.

    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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