Financial Stability in Open Economies

64 Pages Posted: 1 Nov 2013 Last revised: 20 Jan 2014

See all articles by Ippei Fujiwara

Ippei Fujiwara

Australian National University (ANU) - Crawford School of Public Policy

Yuki Teranishi

Keio University - Faculty of Business and Commerce

Multiple version iconThere are 3 versions of this paper

Date Written: October 1, 2013

Abstract

Do financial frictions call for policy cooperation? This paper investigates the implications of financial frictions for monetary policy in the open economy. Welfare analysis shows that there are long-run gains which result from cooperation, but, dynamically, financial frictions per se do not require policy cooperation to improve global welfare over business cycles. In addition, inward-looking financial stability, namely eliminating inefficient fluctuations of loan premiums in its own country, is the optimal monetary policy in the open economy, irrespective of the existence of policy coordination.

Keywords: optimal monetary policy in open economy, financial market imperfections

JEL Classification: E50, F41

Suggested Citation

Fujiwara, Ippei and Teranishi, Yuki, Financial Stability in Open Economies (October 1, 2013). CAMA Working Paper No. 71/2013, Available at SSRN: https://ssrn.com/abstract=2347808 or http://dx.doi.org/10.2139/ssrn.2347808

Ippei Fujiwara (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building #132 Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

Yuki Teranishi

Keio University - Faculty of Business and Commerce ( email )

2-15-45 Mita
Minato-ku
Tokyo 108-8345
Japan

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