The Choice of Monetary Instrument in Two Interdependent Economies Under Uncertainty

19 Pages Posted: 6 Jul 2004 Last revised: 20 Apr 2022

See all articles by Stephen J. Turnovsky

Stephen J. Turnovsky

University of Washington - Institute for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Vasco d'Orey

Independent

Date Written: June 1988

Abstract

This paper analyzes the choice of monetary instrument in a stochastic two country setting where each country's set of monetary policy instruments includes both the money supply and the interest rate. It shows how the optimal choice of instrument is determined In two stages. First, for each pair, the minimum welfare coat for each economy is determined This defines a par of payoff matrices and the second stage involves determining the Nash equilibrium for this bimatrix game. In our illustrative example for the alternative shocks considered, a dominant Nash equilibrium is always obtained.

Suggested Citation

Turnovsky, Stephen J. and d'Orey, Vasco, The Choice of Monetary Instrument in Two Interdependent Economies Under Uncertainty (June 1988). NBER Working Paper No. w2604, Available at SSRN: https://ssrn.com/abstract=428351

Stephen J. Turnovsky (Contact Author)

University of Washington - Institute for Economic Research ( email )

Seattle, WA 98195
United States
206-685-8028 (Phone)
206-543-5955 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Vasco D'Orey

Independent