Designing target rules for international monetary policy cooperation

Gianluca Benigno and Pierpaolo Benigno

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This study analyzes a two-country dynamic general equilibrium model with nominal rigidities, monopolistic competition and producer currency pricing. A quadratic approximation to the utility of the consumers is derived and assumed as the policy objective function of the policymakers. It is shown that only under special conditions there are no gains from cooperation and moreover that the paths of the exchange rate and prices in the constrained-efficient solution depend on the kind of disturbance that affects the economy. It might be the case either for fixed or floating exchange rates. Despite this result, simple targeting rules that involve only targets for the growth of output and for both domestic GDP and CPI inflation rates can replicate the cooperative allocation.

Keywords: monetary policy cooperation; sticky prices; welfare analysis; targeting rules; inflation target (search for similar items in EconPapers)
JEL-codes: E52 F41 F42 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2004-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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http://eprints.lse.ac.uk/3759/ Open access version. (application/pdf)

Related works:
Working Paper: Designing Target Rules for International Monetary Policy Cooperation (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:3759

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