International Transmission and Monetary Policy Cooperation
International Transmission and Monetary Policy Cooperation
This chapter describes a classic theme of international macroeconomics, that is, the gains from policy cooperation in the presence of policy spillovers across countries. In this chapter, a calibrated two-region dynamic stochastic general equilibrium (DSGE) model with nominal rigidities as a framework for the analysis is adopted, with which a quantitative evaluation of those cooperation gains is provided. The New Area-Wide Model (NAWM) version is developed at the European Central Bank (ECB), calibrated to match a number of features of the U.S. and euro area economies. Thus, the findings of this chapter suggests that if simple, self-oriented interest rate rules are pursued by the Fed and the ECB, the losses relative to the full cooperation case will be limited to about one-tenth of steady state consumption.
Keywords: international macroeconomics, dynamic stochastic general equilibrium, DSGE, New Area-Wide Model, NAWM, cooperation gains
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