International Policy Coordination and Simple Monetary Policy Rules

June 1, 2006

Preview Citation

Format: Chicago

Wolfram Berger, and Helmut Wagner. International Policy Coordination and Simple Monetary Policy Rules, (USA: International Monetary Fund, 2006) accessed October 5, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper studies the optimal design of monetary policy in an optimizing two-country sticky price model. We suppose that the production sequence of final consumption goods stretches across both countries and is associated with vertical trade. Prices of final consumption goods are sticky in the consumer's currency. Pursuing an inward-looking policy, as suggested in recent work, is not optimal in this set-up. We also ask which simple, i.e. non-optimal, targeting rule best supports the welfare maximizing policy. The results hinge critically on the degree of price flexibility and the relative importance of cost-push and productivity shocks. In many cases, a strict targeting of price indices like producer or consumer price indices is dominated by rules that allow for some fluctuations in prices such as nominal income or monetary targeting.

Subject: Consumer price indexes, Consumption, Income, Labor, Producer price indexes

Keywords: Monetary policy, Mover accent, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/164
Stock No:

WPIEA2006164
ISBN:

9781451864243
ISSN:

1018-5941

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