Policy Instrument Choice and Non-Coordinated Monetary Policy in Interdependent Economics

Giovanni Lombardo, Alan Sutherland

    Research output: Contribution to journalArticlepeer-review

    5 Citations (Scopus)

    Abstract

    Non-coordinated monetary policy is analyzed in a stochastic two-country general equilibrium model. Non-coordinated equilibria are compared in two cases: one where policy is set in terms of state-contingent money supply rules, and one where policy is set in terms of state-contingent nominal interest rate rules. In general, the non-coordinated equilibrium differs between the two types of policy rule, but a number of special cases are identified where the equilibria are identical. The endogenous choice of policy instrument is analyzed and the Nash equilibrium in the choice of policy instrument is shown to depend on the interest elasticity of money demand. (c) 2006 Elsevier Ltd. All rights reserved.

    Original languageEnglish
    Pages (from-to)855-873
    Number of pages19
    JournalJournal of International Money and Finance
    Volume25
    Issue number6
    DOIs
    Publication statusPublished - Oct 2006

    Keywords

    • monetary policy
    • money supply rules
    • interest rate rules
    • STABILITY
    • WELFARE

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