Financial openness, financial frictions and optimal monetary policy

Ester Faia and Eleni Iliopulos

Post-Print from HAL

Abstract: Increasing financial integration challenges the optimality of inward-looking strategies for optimal monetary policy. Those issues are analyzed in an open economy where foreign net lending, and the current account, are determined by a collateral constraint. Durables represent collateral. The current account features persistent imbalances, but can deliver a long run stationary equilibrium. The comparison between floating and managed exchange rate regimes shows that the impossible trinity is reversed: higher financial integration increases the persistence and volatility of the current account and calls for exchange rate stabilization. In this context, the Ramsey plan too prescribes stabilization of the exchange rate, alongside with domestic inflation.

Keywords: Global imbalances; Collateral constraints; Monetary regimes (search for similar items in EconPapers)
Date: 2011-11
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Published in Journal of Economic Dynamics and Control, 2011, 35 (11), pp.1976-1996. ⟨10.1016/j.jedc.2011.06.012⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Financial openness, financial frictions and optimal monetary policy (2011)
Working Paper: Financial openness, financial frictions and optimal monetary policy (2011)
Working Paper: Financial openness, financial frictions and optimal monetary policy (2011)
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:hal:journl:hal-00628737

DOI: 10.1016/j.jedc.2011.06.012

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().