Financial globalization and monetary policy

Michael B. Devereux, Alan Sutherland

    Research output: Contribution to journalArticlepeer-review

    32 Citations (Scopus)

    Abstract

    Recent data show substantial increases in the size of gross external asset and liability positions. The implications of these developments for optimal Conduct of monetary policy are analyzed in a standard open economy model which is augmented to allow for endogenous portfolio choice. The model shows that monetary policy takes on new importance due to its impact oil nominal asset returns. Nevertheless, the case for price stability as an optimal monetary rule remains. In fact, it is reinforced. Even without nominal price rigidities, price stability is optimal because it enhances the risk sharing Properties of nominal bonds. (C) 2008 Elsevier B.V. All rights reserved.

    Original languageEnglish
    Pages (from-to)1363-1375
    Number of pages13
    JournalJournal of Monetary Economics
    Volume55
    Issue number8
    Early online date4 Oct 2008
    DOIs
    Publication statusPublished - Nov 2008

    Keywords

    • Portfolio choice
    • International risk sharing
    • Exchange rate
    • Nominal Assets
    • Exchange-Rate
    • Trade
    • Risk

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