Implementable Rules for International Monetary Policy Coordination
Michael Devereux (),
Charles Engel () and
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Giovanni Lombardo: Bank for International Settlements
IMF Economic Review, 2020, vol. 68, issue 1, No 5, 108-162
Abstract While economic and financial integration can increase welfare, it can also complicate the policy problem, bringing about new trade-offs or magnifying the existing ones. These policy challenges can be particularly severe in the presence of large (gross) capital flows, e.g., for emerging market economies. Having a quantitative assessment of these trade-offs is key for the design of effective policy interventions. Using a Core-Periphery open-economy DSGE model with financial and nominal frictions, we offer a quantitative assessment of the implied trade-offs and of operational policy targeting rules that can bring about the highest global welfare. These rules need to trade off domestic inflation variability with foreign factors and financial imbalances. We suggest a novel approach, based on the SVAR literature, that can be used to represent targeting rules in rich models.
JEL-codes: E4 E5 F4 F5 G1 (search for similar items in EconPapers)
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