Financial Globalization and Monetary Policy

Michael B. Devereux () and Alan Sutherland ()

No 07/279, IMF Working Papers from International Monetary Fund

Abstract: What does financial globalization imply for the design of monetary policy? Does the case for price stability change in an environment of large cross country gross asset holdings?. This paper is concerned with the effects of monetary policy under endogenous international portfolio choice and incomplete markets. With endogenous portfolios, monetary policy takes on new importance due to its impact on the distribution of returns on nominal assets. Surprisingly, we find an even stronger case for price stability in this environment. Even without nominal rigidities, price stability has a welfare benefit by enhancing the risk sharing capacity of nominal bond returns.

Keywords: Globalization; Monetary policy; Capital flows; Exchange rate instability; International capital markets (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2007-12-19
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Related works:
Working Paper: Financial Globalization and Monetary Policy (2007)
Working Paper: Financial globalization and monetary policy (2008)
Journal Article: Financial globalization and monetary policy (2008)
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