Designing targeting rules for international monetary policy cooperation

Gianluca Benigno and Pierpaolo Benigno

No 279, Working Paper Series from European Central Bank

Abstract: This study analyses international monetary policy cooperation in a two country dynamic general equilibrium model with nominal rigidities, monopolistic competition and producer currency pricing. A quadratic approximation to the utility of the consumers is derived and assumed as the policy objective function of the policy-makers. It is shown that only under special conditions there are no gains from cooperation and moreover that the paths of the exchange rate and prices in the constrained-efficient solution depend on the kind of disturbance that affects the economy. It might be the case either for fixed or floating exchange rates. Despite this result, simple targeting rules that involve only targets for the growth of output and for both domestic GDP and CPI inflation rates can replicate the cooperative allocation. JEL Classification: E52, F41, F42

Keywords: inflation target; Monetary policy cooperation; sticky prices; targeting rules; welfare analysis (search for similar items in EconPapers)
Date: 2003-10
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Citations: View citations in EconPapers (54)

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Journal Article: Designing targeting rules for international monetary policy cooperation (2006)
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