International policy coordination and simple monetary policy rules by Wolfram Berger

Cover of: International policy coordination and simple monetary policy rules | Wolfram Berger

Published by International Monetary Fund, Research Dept. in Washington, D.C .

Written in English

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Subjects:

  • Prices -- Econometric models.,
  • Monetary policy -- Econometric models.,
  • Economic policy -- Econometric models.

About the Edition

This paper studies the optimal design of monetary policy in an optimizing two-country sticky price model. We suppose that the production sequence of final consumption goods stretches across both countries and is associated with vertical trade. Prices of final consumption goods are sticky in the consumer"s currency. Pursuing an inward-looking policy, as suggested in recent work, is not optimal in this set-up. We also ask which simple, i.e. non-optimal, targeting rule best supports the welfare maximizing policy. The results hinge critically on the degree of price flexibility and the relative importance of cost-push and productivity shocks. In many cases, a strict targeting of price indices like producer or consumer price indices is dominated by rules that allow for some fluctuations in prices such as nominal income or monetary targeting.

Edition Notes

Book details

Statementprepared by Wolfram Berger and Helmut Wagner.
SeriesIMF working paper -- WP/06/164
ContributionsWagner, Helmut, 1951-, International Monetary Fund. Research Dept.
The Physical Object
Pagination26 p. :
Number of Pages26
ID Numbers
Open LibraryOL19665029M

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International Policy Coordination and Simple Monetary Policy Rules Prepared by Wolfram Berger and Helmut Wagner1 Authorized for distribution by Raghuram Rajan June Abstract This Working Paper should not be reported as representing the views of the IMF.

International Policy Coordination and Simple Monetary Policy Rules Wolfram Berger1 and Helmut Wagner2 Abstract This paper studies the optimal design of monetary policy in an optimizing two-country sticky price model. We suppose that the production sequence of flnal consumption goods stretches across both countries and is associated with Author: Wolfram Berger.

Monetary authorities should respond to both home and foreign shocks in this set-up. Which simple, i.e. non-optimal, targeting rule best supports the welfare maximizing policy hinges critically on the degree of the cross-country interdependence in production and the relative importance of productivity and cost-push : Wolfram Berger.

Get this from a library. International policy coordination and simple monetary policy rules. [Wolfram Berger; Helmut Wagner; International Monetary Fund. Research Department.] -- This paper studies the optimal design of monetary policy in an optimizing two-country sticky price model.

We suppose that the production sequence of final consumption goods stretches across both. International Policy Coordination and Simple Monetary Policy Rules. Optimal monetary rules, how ever, inv olve very demanding information require-men ts that may preven t their practical.

This paper studies the optimal design of monetary policy in an optimizing two-country sticky price model. We suppose that the production sequence of final consumption goods stretches across both countries and is associated with vertical trade.

Prices of final consumption goods are sticky in the consumer's currency. International policy coordination and simple monetary policy rules book an inward-looking policy, as suggested in recent work, is not.

International Policy Coordination and Simple Monetary Policy Rules. monetary fund, world trade, money stock, international monetary policy, vertical specialization, import inflation, adjustment to shocks, monetary target, world economy, market integration, market equilibrium, international integration, border trade, commodity trade.

policy coordination. These issues have implications for the causes of the global financial crisis, the recent slow recovery, and international monetary policy going forward. Reasons Why Monetary Policy Deviations Go Global I focus on the unusually large deviations of policy interest rates from policy rules.

Research in the early s found that the gains from international coordination of monetary policy were quantitatively small compared to simply getting domestic policy right. That prediction turned out to be a pretty good description of monetary policy in the s, s, and until recently.

rates. Despite this result, simple targeting rules that involve only targets for the growth of output and for both domestic GDP and CPI in°ation rates can replicate the cooperative allocation.

Keywords: monetary policy cooperation, sticky prices, welfare analysis, targeting rules. The previous quotation outlines the basic idea behind the literature on international monetary policy cooperation in the s and s. The existence of externalities, whether positive or negative, is the source of a need of international monetary cooperation when countries do not internalize the effects of their actions on other countries.

International monetary policy coordination – at least formal discussions of rules-based policies and the issues reviewed here – would help central banks get such equilibrium. JEL classification: E5, F4, F3 Keywords: monetary policy spillovers, unconventional monetary policy, international policy coordination 1 Stanford University, July International Policy Coordination and Simple Monetary Policy Rules.

Monetary Policy Cooperation and Coordination 2. The classical gold standard, to The classical gold standard was the original rules- based monetary policy regime (Bordo and Kydland ). The basic rule for each monetary authority was to maintain convertibility of its paper cur.

Wolfram Berger, "International Policy Coordination and Simple Monetary Policy Rules," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol.

(II), pagesJune. Policy coordination may be beneficial by preventing the externalities created by policy spillovers, as well as by promoting international risk sharing.

The usefulness of coordination depends upon numerous characteristics of an economy, including the degree of openness in goods and asset markets.

So a simple New Keynesian model in which the only distortions are price stickiness and monopoly distortions is insufficient. Benigno and Benigno (), in a simple model, design a set of monetary policy rules that each country could follow, in which they P.

BenignoDesigning targeting rules for international monetary policy coordination. Finally, the focus of our contribution is on welfare-based policy rules, whether fully optimal or ap-proximately so In the international monetary policy coordination literature, an important dimension of policy outcomes is the payo that each country can reap by committing to the optimal cooperative rule relative to \self-oriented" alternative.

Questions addressed include: the merits of simple policy rules, policy design in the face of uncertainty and international policy coordination.

A central feature of the book is the treatment of credibility and the effect of a policy-maker's reputation for sticking to announced policies. 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. International policy coordination and simple monetary policy rules. By Wolfram Berger. Get PDF ( KB) Cite. BibTex; Full citation Publisher: Springer Nature.

Year: DOI identifier: /bf OAI identifier: Provided by: MUCC (Crossref). policy coordination.3 A further strand has used simple policy rules on large econometric models and it is this area of research that we aim to build upon.

Most of this literature has focused on targeting exchange rates and stems from the work of Williamson and Miller who proposed the use of monetary policy toŽ.

"A simple approach to international monetary policy coordination," Journal of International Economics, Elsevier, vol. 57(1), pagesJune. Matthew B. Canzoneri & Dale W. Henderson, " Monetary Policy in Interdependent Economies: A Game-Theoretic Approach," MIT Press Books, The MIT Press, edition 1, volume 1, number 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. By Olivier Blanchard, Jonathan D. Ostry, and Atish R. Ghosh International policy coordination is like the Loch Ness monster: much discussed but rarely seen. Going back over the decades, and even further in history to the period between the Great Wars, coordination efforts have been episodic.

Coordination seems to. Exchange rates, monetary policy and international policy coordination •Their “simple” rules are not simple for policy-making purposes Updated consensus on international policy coordination •“Keep own house in order”, but with more rigorous surveillance and peer review.

Macroeconomics paper on monetary policy rules. Using Models to Evaluate Simple Policy Rules The starting point for our review of monetary policy rules is the research that began in the mid s, took off in the s and s, and is still expanding.

As mentioned above, this. The book investigates issues of policy design in open economies. The performance of simple alternative policy rules is analysed in the context of theoretical models using both analytical solutions and numerical simulations techniques.

One of the substantive contributions of the research is. Latest Data; Background and Resources; Archives; Description: We show federal funds rates from 7 simple monetary policy rules based on 3 sets of forecasts for economic conditions.

Why so many rules. Examining a variety of rules is helpful because there is no agreement on a single “best” rule, and different rules can sometimes generate very different values for the federal funds rate, both.

Monetary and Fiscal Policy Coordination Hanif, Muhammad N. and Arby, Muhammad Farooq Dahan () develops a simple framework to examine budgetary implications of monetary policy.

Dahan outlines various channels of influence that tight monetary policy, arrangements and rules for the treatment of central bank profits and losses may be. An Analytical Approach to Monetary and Fiscal Coordination This essay examines the issues of policy coordination in greater depth in two dimensions.

In this section, I develop a game-theoretic model of the coordination of domestic fiscal and monetary policy. This approach provides a rich set of possible outcomes depending on the degree of co.

In such circumstances, gains from policy coordination across countries are likely to be larger than during the Great Moderation. Coordinated fiscal stimulus and unilateral monetary policy. Coordination is seen, occasionally. The global fiscal stimulus enacted in the early days of the financial crisis is a case in point.

This presentation is part of: E Current Issues in Monetary Economics International Policy Coordination and Simple Monetary Policy Rules. Wolfram Berger, Dr., IESEG School of Management, 3 rue de la Digue, Lille,France and Helmut M.

Wagner, Dr., Department of Economics. The objective of such a reassessment is to enhance the understanding of what type of coordination and what institutional setting for policy coordination can be expected to be most favorable.

Challenges for Economic Policy Coordination within European Monetary Union provides an intellectually stimulating contribution to the ongoing: Hardcover. International Dimensions of Monetary Policy: Coordination Versus Autonomy (), for one, has argued for a rules-based approach to policy coor- dination along the lines of Bretton Woods because it economizes on the scarce resource of willingness-to-coordinate.

On the other side. Home, Jocelyn, and Masson, Paul, ‘Scope and Limits of International Economic Cooperation and Policy Coordination’, Staff Papers, International Monetary Fund, 35, June Hughes-Hallett, Andrew, ‘Macroeconomic Policy Design with Incomplete Information: A New Argument for Coordinating Economic Policies’, Centre for Economic Policy.

What determines the size and form of redistributive programs, the extent and type of public goods provision, the burden of taxation across alternative tax bases, the size of government deficits, and the stance of monetary policy during the course of business and electoral cycles.

A large and rapidly growing literature in political economics attempts to answer these questions.5/5(2). The paper examines international issues that arise in the design and evaluation of macroeconomic policy rules. It begins with a theoretical investigation of the effects of fiscal and monetary policy in a two-country rational expectations model with staggered wage and.

Does international macroeconomic policy coordination pay and is it sustainable?: a two-country analysis; International cooperation and reputation in an empirical two-bloc model; Fiscal policy coordination, inflation and reputation in a natural rate world; The use of simple rules for international policy coordination; monetary policy if monetary policy is used pre-emptively.

While we show the net cost calculation is sensitive to assumptions, the primary objective of the analysis is to highlight that more research is needed to better quantify the magnitude of monetary policy on financial vulnerabilities through asset prices and endogenous risk-taking.

the consensus academic position is that the gains from international coordination on monetary policy are negligible at best, and possibly even counterproductive. This position—that an inward-looking policy is approximately optimal and there is not much to gain from policy coordination—has persisted for nearly 40 years, even though national.Two Views of International Monetary Policy Coordination James Bullard President and CEO, FRB -St.

Louis 17th Annual Asian Investment Conference 27 March Hong Kong, China Any opinions expressed here are my own and do not necessarily reflect those of the Federal Open Market Committee.Subsequent sections look at historical antecedents of today's challenges, describe how the modern international monetary system has been-and continues to be-shaped through international financial diplomacy, provide a present-day perspective, and examine the analytics of international policy coordination.

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