Bodenstein, M., Corsetti, G. and Guerrieri, L.
The Elusive Gains from Nationally-Oriented Monetary Policy
WP Number: 2003
Abstract: The consensus in the recent literature is that the gains from international monetary cooperation are negligible, and so are the costs of a breakdown in cooperation. However, when assessed conditionally on empirically-relevant dynamic developments of the economy, the welfare cost of moving away from regimes of explicit or implicit cooperation may rise to multiple times the cost of economic fluctuations. In economies with incomplete markets, the incentives to act non-cooperatively are driven by the emergence of global imbalances, i.e., large net-foreign-asset positions; and, in economies with complete markets, by divergent real wages.
Keywords: monetary policy cooperation, global imbalances, open-loop Nash games
JEL Codes: E44 E61 F42
Author links: Giancarlo Corsetti
PDF: wp2003.pdf 
Open Access Link: 10.17863/CAM.52426
Grant: Brexit Project
