English, Article, Journal or magazine article edition: Financial Stability in Open Economies Ippei Fujiwara; Yuki Teranishi

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Bookmark: http://trove.nla.gov.au/version/35300
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Financial Stability in Open Economies
Author
  • Ippei Fujiwara
  • Yuki Teranishi
Physical Description
  • preprint
Notes
  • This paper investigates the implications for monetary policy of financial markets that are internationally integrated but have intrinsic frictions. When there is no other distortion than financial market imperfections in the form of staggered international loan contracts, financial stability, which here constitutes eliminating the inefficient fluctuations of loan premiums, is the optimal monetary policy in open economies, regardless of whether policy coordination is possible. Yet, the optimality of inward-looking monetary policy requires an extra condition, in addition to those included in previous studies on the optimal monetary policy in open economies. To make allocations between cooperative and noncooperative monetary policy coincide, the exchange rate risk must be perfectly covered by the banks. Otherwise, each central bank has an additional incentive to control the nominal exchange rate to favor firms in her own country by reducing the exchange rate risk.
  • optimal monetary policy, policy coordination, global banking, international staggered loan contracts
  • RePEc:ime:imedps:09-e-09
Language
  • English
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