Monetary Policy Coordination Revisited in a Two-Bloc DSGE Model

Paul Levine (), Joseph Pearlman and Richard Pierse

No 907, School of Economics Discussion Papers from School of Economics, University of Surrey

Abstract: We reassess the gains from monetary policy coordination within the confines of the canonical NOEM in the light of three issues. First, the literature uses a number of cooperative and non-cooperative equilibrium concepts that do not always clearly distinguish commitment and discretionary outcomes, and in some cases adopts inappropriate concepts. Second, our analysis is welfare based. Moreover, as with much of this literature, we adopt a linear-quadratic approximation of the actual non-linear non-quadratic stochastic optimization problem facing the monetary policymakers. Our second objective then is to re-assess welfare gains using an accurate approximation for such a problem, a feature that for the most part is lacking in previous studies. Finally, we examine the issue where the monetary authority is restricted to rules that are operational in two senses: first, the zero lower bound constraint is imposed on the optimal rule and second, we study simple Taylor-type commitment rules that unlike fully optimal rules are easily monitored by the public.

Keywords: monetary rules; open economy; coordination games; commitment; discretion; zero bound constraint (search for similar items in EconPapers)
JEL-codes: E37 E52 E58 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2007-10
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:sur:surrec:0907

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