Time Consistency and Counterproductive Monetary Policy Cooperation in a Two‐Country New Keynesian Model

Thang Doan and Junichi Fujimoto

Journal of Money, Credit and Banking, 2022, vol. 54, issue 5, 1491-1523

Abstract: We use a two‐country New Keynesian model to revisit the issue of counterproductive monetary policy cooperation. By analyzing the optimal commitment, discretionary, and sustainable policies, we show how counterproductive cooperation and governments' commitment ability are linked. The global Friedman rule, whereby both countries always adopt the Friedman rule, maximizes the joint welfare for a wide range of parameters. However, cooperation makes the global Friedman rule unimplementable under discretionary policies and harder to sustain under sustainable policies. Counterproductive cooperation therefore arises naturally when governments lack commitment ability and some stronger commitment device than reputation is necessary to achieve gains from cooperation.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/jmcb.12869

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:54:y:2022:i:5:p:1491-1523

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley Content Delivery ().