Optimal monetary policy, exchange rate misalignments and incomplete financial markets

• 成果类型: Article
• 署名作者: Senay, Ozge; Sutherland, Alan
• 署名单位: University of St Andrews; University of St Andrews; Centre for Economic Policy Research - UK
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2018.12.001
• 发表日期: 2019
• 页码: 196-208
• 关键词: Optimal monetary policy; Financial market structure; Country portfolios

摘要

Recent literature shows that, when international financial trade is restricted to autarky or a single bond, there are internal and external welfare trade-offs that imply optimal monetary policy, in principle, deviates from inflation targeting in order to offset real exchange rate misalignments. This paper develops a more realistic model of incomplete markets, where there is international trade in multiple assets. The analysis shows that the presence of multiple assets creates a potentially powerful interaction between monetary policy and household portfolio allocation. This interaction is, by definition, not present when there is financial autarky or a single tradeable bond and this paper shows that the interaction with portfolio allocation can imply that optimal monetary policy generates a quantitatively much more significant stabilisation of the real exchange rate gap than implied by simpler models of financial market incompleteness. (C) 2019 Elsevier B.V. All rights reserved.