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Financial stability in open economies

Yuki Teranishi and Ippei Fujiwara

AJRC Working Papers from Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University

Abstract: Do financial frictions call for policy cooperation? This paper investigates the implications of financial frictions for monetary policy in the open economy. Welfare analysis shows that there are long-run gains which result from cooperation, but, dynamically, financial frictions per se do not require policy cooperation to improve global welfare over business cycles. In addition, inward-looking financial stability, namely eliminating inefficient fluctuations of loan premiums in the home country, is the optimal monetary policy in the open economy, irrespective of the existence of policy coordination.

JEL-codes: E50 F41 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2013
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Financial Stability in Open Economies (2013) Downloads
Working Paper: Financial Stability in Open Economies (2009) Downloads
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