The Global Financial Cycle and International Monetary Policy Cooperation

Shangshang Li

No 202405, Working Papers from University of Liverpool, Department of Economics

Abstract: This paper evaluates gains from international monetary policy cooperation between the financial centre and periphery countries in a two-country open economy model consistent with global financial cycles. Compared to the non-cooperative Nash equilibrium, the optimal cooperative equilibrium robustly fails to benefit both countries simultaneously. The financial periphery is more likely to gain from cooperation if it raises less foreign currency debt or is relatively small. These results also hold when considering the transitional gains and losses of moving from non-cooperation to cooperation. The uneven distribution of gains from cooperation persists when both countries adopt implementable policy rules with and without cooperation. Nevertheless, both countries gain when transitioning from the Nash to the cooperative implementable rules. Regardless of the financial centre's policy, rules responding to the exchange rate dominate over purely inward-looking rules for the financial periphery.

Keywords: policy cooperation; global financial cycle; currency mismatch (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 E61 F34 F42 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2024
New Economics Papers: this item is included in nep-cba, nep-dge, nep-fdg, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.liverpool.ac.uk/media/livacuk/schoolof ... s/ECON,WP,202405.pdf First version, 2024

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:liv:livedp:202405

Access Statistics for this paper

More papers in Working Papers from University of Liverpool, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Rachel Slater ().