Download This PaperFinancial Stability in Open Economies
64 Pages Posted: 1 Nov 2013 Last revised: 20 Jan 2014
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Financial Stability in Open Economies
Financial Stability in Open Economies
Financial Stability in Open Economies
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: Suggested Citation
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
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