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Monetary Policy Rules and the International Monetary Transmission. CEPS Working Document No. 191, October 2002

Coutinho, Leonor. (2002) Monetary Policy Rules and the International Monetary Transmission. CEPS Working Document No. 191, October 2002. [Working Paper]

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    This paper analyses alternative monetary policy rules for the ECB, using a two "country" model of the euro area and the US, that assumes monopolistic competition, sticky prices and optimizing agents. The alternative rules analyzed for the ECB are ranked by their ability to stabilize consumption, output, and inflation and maximize consumers’ welfare. The analysis contributes toward understanding the trade-offs faced by policymakers in open economies and provides some support for the current design of the ECB’s operational framework. The results suggest that stabilizing money-growth, in addition to inflation, gives an additional degree of freedom to stabilize output. Although price stability is likely to remain the primary objective of the ECB, monetary policy must “without prejudice of price stability (...) support the general economic policies in the Community...” (Article 2). Hence monitoring money, under certain assumptions about the shocks hitting the economy, may deliver a better outcome in terms of output stabilization which should allow the ECB to fulfill its secondary but nonetheless important commitment.

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    Item Type: Working Paper
    Subjects for non-EU documents: EU policies and themes > External relations > international economy
    EU policies and themes > EU institutions & developments > European Central Bank
    EU policies and themes > External relations > EU-US
    EU policies and themes > Policies & related activities > economic and financial affairs > monetary policy
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > CEPS Working Documents
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 04 Oct 2009
    Page Range: p. 47
    Last Modified: 15 Feb 2011 18:16

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