Chapter

International Transmission and Monetary Policy Cooperation

Edited by Günter Coenen, Giovanni Lombardo, Frank Smets and Roland Straub

in International Dimensions of Monetary Policy

Published by University of Chicago Press

Published in print March 2010 | ISBN: 9780226278865
Published online February 2013 | e-ISBN: 9780226278872 | DOI: http://dx.doi.org/10.7208/chicago/9780226278872.003.0004
International Transmission and Monetary Policy Cooperation

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This chapter describes a classic theme of international macroeconomics, that is, the gains from policy cooperation in the presence of policy spillovers across countries. In this chapter, a calibrated two-region dynamic stochastic general equilibrium (DSGE) model with nominal rigidities as a framework for the analysis is adopted, with which a quantitative evaluation of those cooperation gains is provided. The New Area-Wide Model (NAWM) version is developed at the European Central Bank (ECB), calibrated to match a number of features of the U.S. and euro area economies. Thus, the findings of this chapter suggests that if simple, self-oriented interest rate rules are pursued by the Fed and the ECB, the losses relative to the full cooperation case will be limited to about one-tenth of steady state consumption.

Keywords: international macroeconomics; dynamic stochastic general equilibrium; DSGE; New Area-Wide Model; NAWM; cooperation gains

Chapter.  15380 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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