The Transmission of Monetary Policy in Interdependent Economies: An Empirical Investigation of the US and Europe

Elias Karakitsos

Chapter 9 in Money and Banking, 1993, pp 138-162 from Palgrave Macmillan

Abstract: Abstract At the root of the problem of economic policy co-ordination lies the international transmission of monetary policy. Economic analysis points to a number of ambiguities with respect to the effect on the foreign economy. In particular, a monetary expansion in the home economy may cause recession abroad, lower inflation and deterioration of the current account, depending on parameter values. These ambiguities are exacerbated if the model allows for an endogenous explanation of expected depreciation. Resort has to be made to empirical evidence with two aims: to examine whether these responses are likely to be observed in the real world; and to investigate whether there are any asymmetries between the USA and Europe with respect to the effects on the home and foreign economies, following a monetary expansion at home.

Keywords: Exchange Rate; Interest Rate; Monetary Policy; Current Account; Rational Expectation (search for similar items in EconPapers)
Date: 1993
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-13319-2_9

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DOI: 10.1007/978-1-349-13319-2_9

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