Author : Wolfram Berger
Publisher : International Monetary Fund
ISBN 13 :
Total Pages : 32 pages
Book Rating : 4.21/5 ( download)
Book Synopsis International Policy Coordination and Simple Monetary Policy Rules by : Wolfram Berger
Download or read book International Policy Coordination and Simple Monetary Policy Rules written by Wolfram Berger and published by International Monetary Fund. This book was released on 2006-06 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the optimal design of monetary policy in an optimizing two-country sticky price model. We suppose that the production sequence of final consumption goods stretches across both countries and is associated with vertical trade. Prices of final consumption goods are sticky in the consumer's currency. Pursuing an inward-looking policy, as suggested in recent work, is not optimal in this set-up. We also ask which simple, i.e. non-optimal, targeting rule best supports the welfare maximizing policy. The results hinge critically on the degree of price flexibility and the relative importance of cost-push and productivity shocks. In many cases, a strict targeting of price indices like producer or consumer price indices is dominated by rules that allow for some fluctuations in prices such as nominal income or monetary targeting.