Discussion Paper Details

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Title: International Monetary Policy Coordination and Financial Market Integration

Author(s): Alan Sutherland

Publication Date: February 2004

Keyword(s): financial integration, monetary policy coordination and risk sharing

Programme Area(s): International Macroeconomics

Abstract: This Paper analyses the implications of financial market structure for the existence and size of welfare gains from international monetary policy coordination. Policy coordination is analysed in a two-country stochastic general equilibrium model simple enough to yield explicit analytical solutions. Welfare gains from coordination are found to be largest when: the elasticity of substitution between home and foreign goods differs from unity; international markets in state-contingent assets allow full consumption risk sharing; and asset trade takes place before monetary policy rules are determined. Welfare gains are found to be much smaller when there are no international financial markets.

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Bibliographic Reference

Sutherland, A. 2004. 'International Monetary Policy Coordination and Financial Market Integration'. London, Centre for Economic Policy Research.