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International policy coordination and simple monetary policy rules

Swiss Journal of Economics and Statistics volume 146, pages 451–479 (2010)Cite this article

Summary

This paper studies monetary policy in an optimizing two-country model. We suppose a two-step production process that is associated with vertical trade. Prices of final consumption goods are sticky and pass-through can be incomplete. Monetary authorities should respond to both home and foreign shocks in this set-up. Which simple, i.e. non-optimal, targeting rule best supports the welfare maximizing policy hinges critically on the degree of the cross-country interdependence in production and the relative importance of productivity and cost-push shocks. We argue that the relative volatility of productivity and cost-push shocks determines whether the monetary authority should follow a price targeting rule whereas the degree of vertical integration determines which simple price targeting rule (producer or consumer price index targeting) is best.

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Authors and Affiliations

  1. IESEG School of Management and LEM (Lille — Economics and Management — UMR CNRS, 8179), 3 rue de la digue, 59000, Lille, France

    Wolfram Berger

  2. Technical University of Cottbus, Konrad-Wachsmann-Allee 1, 03046, Cottbus, Germany

    Wolfram Berger

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  1. Wolfram Berger
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Correspondence to Wolfram Berger.

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Open Access This article is distributed under the terms of the Creative Commons Attribution 2.0 International License ( https://creativecommons.org/licenses/by/2.0 ), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Berger, W. International policy coordination and simple monetary policy rules. Swiss J Economics Statistics 146, 451–479 (2010). https://doi.org/10.1007/BF03399323

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