International monetary co-operation in a world of imperfect information

Kang Yong Tan () and Misa Tanaka

No 344, Bank of England working papers from Bank of England

Abstract: This paper examines the welfare implications of international monetary co-operation using a stylised two-country New Keynesian general equilibrium model of imperfect information. We show that setting a self-oriented monetary policy rule generally leads to welfare gains relative to passive monetary policy even when central banks do not have perfect information about the foreign economy. However, information sharing between central banks in this set-up, by itself, has ambiguous welfare implications. Gains from monetary co-ordination are largest when productivity shocks are negatively correlated across countries.

Keywords: Policy co-ordination; imperfect information; monetary policy; new open economy macroeconomics. (search for similar items in EconPapers)
JEL-codes: F41 F42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
Date: 2008-03

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Persistent link: http://EconPapers.repec.org/RePEc:boe:boeewp:0344

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