When Does Coordination Pay?

Marcus Miller and Mark Salmon

No 425, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In a continuous time model of two symmetric open economies, with a floating exchange rate, we find that the pay-off to the policy coordination depends systematically on the heterogeneity of their inflation experience. While monetary policy coordination improves welfare when there is a common rate of underlying inflation, it exacerbates the `time-consistency' problem arising when there are differences. Since the principle of `certainty equivalence' applies to time-consistent policy in linear quadratic models, we are also able to give a stochastic interpretation of the deterministic results.

Keywords: Certainty Equivalence; Floating Exchange Rates; Policy Coordination; Time Consistency (search for similar items in EconPapers)
Date: 1990-07
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=425 (application/pdf)

Related works:
Journal Article: When does coordination pay? (1990)
Working Paper: WHEN DOES COORDINATION PAY? (1989)
Working Paper: WHEN DOES COORDINATION PAY?
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:cpr:ceprdp:425

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... pers/dp.php?dpno=425

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().