The zero lower bound and monetary policy in a global economy: A simple analytical investigation

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8 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)103-134
Number of pages32
JournalInternational Journal of Central Banking
Volume6
Issue number1
Publication statusPublished - 2010 Mar
Externally publishedYes

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Zero lower bound
Global economy
Monetary policy
Discretion
International spillovers
Two-country model
Nominal interest rate
Intertemporal elasticity of substitution
Spillover effects

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

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abstract = "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.",
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