Financial Stability in Open Economies

63 Pages Posted: 30 Nov 2013

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: November 28, 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 the home 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 (November 28, 2013). Crawford School Research Paper No. 06/2013, Available at SSRN: https://ssrn.com/abstract=2361276 or http://dx.doi.org/10.2139/ssrn.2361276

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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