Projects per year
Abstract
Using a standard open economy DSGE model, it is shown that the timing of asset trade relative to policy decisions has a potentially important impact on the welfare evaluation of monetary policy at the individual country level. If asset trade in the initial period takes place before the announcement of policy, a national policymaker can choose a policy rule which reduces the work effort of households in the policymaker’s country in the knowledge that consumption is fully insured by optimally chosen international portfolio positions. But if asset trade takes place after the policy announcement, this insurance is absent and households in the policymaker’s country bear the full consumption consequences of the chosen policy rule. The welfare incentives faced by national policymakers are very different between the two cases. Numerical examples confirm that asset market timing has a significant impact on the optimal policy rule.
Original language | English |
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Pages (from-to) | 1543-1573 |
Number of pages | 31 |
Journal | Macroeconomic Dynamics |
Volume | 17 |
Issue number | 8 |
Early online date | 19 Mar 2013 |
DOIs | |
Publication status | Published - Dec 2013 |
Keywords
- Asset trade
- Optimal monetary policy
- Monetary policy in open economies
- International financial markets
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Dive into the research topics of 'The timing of asset trade and optimal policy in dynamic open economies'. Together they form a unique fingerprint.Projects
- 1 Finished
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ESRC RES-156-25-0027: Monetary policy welfare and the structure of international financial markets
Sutherland, A. (PI)
Economic & Social Research Council
1/01/06 → 30/06/07
Project: Standard