How should monetary policy cooperation be designed when more than one country is simultaneously facing zero lower bounds on nominal interest rates? To answer this question, we examine monetary policy cooperation with both optimal discretion and commitment policies in a two-country model. We reach the following conclusions. Under discretion, monetary policy cooperation is characterized by the intertemporal elasticity of substitution (IES), a key parameter measuring international spillovers, and no history dependency. On the other hand, under commitment, monetary policy featureshistory dependence with international spillover effects.
|Number of pages||32|
|Journal||International Journal of Central Banking|
|Publication status||Published - 2010 Mar|
ASJC Scopus subject areas
- Economics and Econometrics