Optimal Monetary Policy in a Currency Union: Implications of a Country-specific Cost Channel

Arbeitspapier

There is growing empirical evidence that the strength of the cost channel of monetary policy differs across countries. Using a New Keynesian model of a two-country monetary union, we show how the introduction of a cost channel (differential) alters the optimal monetary responses to union-wide and national shocks. The cost channel makes monetary policy less effective in combating inflation, but it is shown that the optimal response to the decline in effectiveness is a stronger use of the instrument. On the other hand, the larger the cost channel differential, the less aggressive will the optimal monetary policy be. For almost all para- meter constellations, our welfare analysis suggests a clear-cut ranking of policy regimes: commitment outperforms the Taylor rule, the Taylor rule outperforms strict inflation targeting, and strict inflation targeting outperforms discretion.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: MAGKS Joint Discussion Paper Series in Economics ; No. 44-2014

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Price Level; Inflation; Deflation ; Monetary Policy ; Open Economy Macroeconomics
• Thema: cost channel ; optimal monetary policy ; monetary union ; open economy macroeconomics

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Michaelis, Jochen ; Palek, Jakob
• Ereignis: Veröffentlichung
• (wer): Philipps-University Marburg, Faculty of Business Administration and Economics
• (wo): Marburg
• (wann): 2014

Weitere Informationen

• Handle: http://hdl.handle.net/10419/105074
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ