The Gains From International Monetary Cooperation Revisited
IMF Working Papers, January 1, 2004
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Bibliographic details
- Authors: Ivan Tchakarov
- Published: January 1, 2004
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451841664.001
Research question and objective
- Examines whether countries can improve welfare by coordinating macroeconomic policies.
- Main purpose: compute the gains from international monetary cooperation as the difference between the steady state consumption levels associated with the Nash and the cooperative outcomes of the game in which monetary authorities pursue active monetary policy.
- Method: a numerical second-order approximation makes the solution of the model possible.
Key findings
- The gains from international cooperation in monetary policy could be very significant and reach as high as 2.2 percent of steady state consumption.
- This result is presented as contrary to Obstfeld and Rogoff (2002), who claim that the gains from international cooperation in monetary policy are negligible.
- Implication: individual countries could experience significant welfare losses if they concentrate only on domestic stabilization policies.
Methodology and model features
- Framework compares Nash outcome versus cooperative outcome in a monetary-policy game.
- Solution achieved using a numerical second-order approximation.
- Monetary authorities are modeled as pursuing active monetary policy.
- Outcome metric: steady state consumption levels.
Policy implications and recommendations
- International monetary policy coordination can deliver materially positive welfare gains (up to 2.2 percent of steady state consumption).
- Policymakers focusing solely on domestic stabilization may incur significant welfare losses relative to cooperative policy arrangements.
- Findings support consideration of cooperative frameworks for monetary policy among countries that currently act unilaterally.
Subject classifications and keywords
- Subject: Consumption, Financial markets, Labor, National accounts, Prices, Securities markets, Sticky prices, Wages
- Keywords: Consumption, consumption index, Global, goods sector, monetary policy, monetary policy coordination, price index, second-order approximation, Securities markets, steady state consumption, Sticky prices, utility function, Wages, welfare gain, WP