A Simple Framework for International Monetary Policy Analysis / Richard Clarida, Jordi Gali, Mark Gertler.

Format:

Book

Author/Creator:

Clarida, Richard.

Contributor:

National Bureau of Economic Research.

Gali, Jordi.

Gertler, Mark.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8870.

NBER working paper series no. w8870

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

We study the international monetary policy design problem within an optimizing two-country sticky price model, where each country faces a short run tradeoff between output and inflation. The model is sufficiently tractable to solve analytically. We find that in the Nash equilibrium, the policy problem for each central bank is isomorphic to the one it would face if it were a closed economy. Gains from cooperation arise, however, that stem from the impact of foreign economic activity on the domestic marginal cost of production. While under Nash central banks need only adjust the interest rate in response to domestic inflation, under cooperation they should respond to foreign inflation as well. In either scenario, flexible exchange rates are desirable.

Notes:

Print version record

April 2002.