Designing Targeting Rules for International Monetary Policy Cooperation

Benigno, Pierpaolo and Benigno, Gianluca (2004) Designing Targeting Rules for International Monetary Policy Cooperation. [Discussion Paper]. Centre for Economic Performance, London School of Economics and Political Science, London, UK. p. 52. CEP Discussion Papers (dp0666). ISBN 0 7530 1806 3.

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This study analyzes a two-country dynamic general equilibrium model with nominal rigidities, monopolistic competition and producer currency pricing. A quadratic approximation to the utility of the consumers is derived and assumed as the policy objective function of the policymakers. It is shown that only under special conditions there are no gains from cooperation and moreover that the paths of the exchange rate and prices in the constrained-efficient solution depend on the kind of disturbance that affects the economy. It might be the case either for fixed or floating exchange rates. Despite this result, simple targeting rules that involve only targets for the growth of output and for both domestic GDP and CPI inflation rates can replicate the cooperative allocation.

Item Type: Report / Paper (Discussion Paper)
Research documents and activity classification: Working Papers > Non-Refereed Working Papers / of national relevance only
Divisions: Department of Business and Management
Uncontrolled Keywords: Monetary Policy Cooperation, Sticky Prices, Welfare Analysis, Targeting Rules, Inflation Target
MIUR Scientific Area: Area 13 - Economics and Statistics > SECS-P/01 Political Economy
Deposited by: Maria Teresa Nisticò
Date Deposited: 11 Nov 2010 14:47
Last Modified: 21 Apr 2015 23:13


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