The Zero Lower Bound and Monetary Policy in a Global Economy: A Simple Analytical Investigation

Ippei Fujiwara, Nao Sudo and Yuki Teranishi

International Journal of Central Banking, 2010, vol. 6, issue 1, 103-134

Abstract: How should monetary policy cooperation be designed when more than one country is simultaneously facing zero lower bounds on nominal interest rates? To answer this question, we examine monetary policy cooperation with both optimal discretion and commitment policies in a two-country model. We reach the following conclusions. Under discretion, monetary policy cooperation is characterized by the intertemporal elasticity of substitution (IES), a key parameter measuring international spillovers, and no history dependency. On the other hand, under commitment, monetary policy features history dependence with international spillover effects.

JEL-codes: E52 F41 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (24)

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