Cost-Push Shocks and Monetary Policy and Monetary Policy in Open Economies

Arbeitspapier

This paper analyses the implications of cost-push shocks for the optimal choice of monetary policy target in an two-country sticky-price model. In addition to cost-push shocks, each country is subject to labour-supply and money-demand shocks. It is shown that the fully optimal coordinated policy can be supported by independent national monetary authorities following a policy of flexible inflation targeting. A number of simple (but non-optimal) targeting rules are compared. Strict producer-price targeting is found to be the best simple rule when the variance of cost-push shocks is small. Strict consumerprice targeting is best for intermediate levels of the variance of cost-push shocks. And nominal-income targeting is best when the variance of cost-push shocks in high. In general, money-supply targeting and fixed nominal exchange rates are found to yield less welfare than these other regimes.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series 1 ; No. 2002,27

Classification and Topics

• Classification: Wirtschaft ; Central Banks and Their Policies ; Open Economy Macroeconomics ; Monetary Policy
• Subject: monetary policy ; inflation targeting ; welfare ; Geldpolitisches Ziel ; Zwei-Länder-Modell ; Offene Volkswirtschaft ; Geldpolitik ; Wohlfahrtseffekt ; Inflation Targeting ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Sutherland, Alan
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/19584
• Last update: 10.03.2025, 11:45 AM CET