"Monetary policy coordination, credibility and structural asymmetries"

Bednar, N. and Monfort, Philippe. (1997) "Monetary policy coordination, credibility and structural asymmetries". In: UNSPECIFIED, Seattle, WA. (Unpublished)

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Abstract

The aim of this paper is to discuss the issue of monetary policy coordination in a framework where partners differ not because of idiosyncratic shocks but because of structural asymmetries affecting the conduct of national economic policies. These are introduced at the level of the country size or equivalently at the level of factor productivity. The main result of the paper is that, if coordination of the monetary policy proves to be welfare improving, the gains from cooperation reduce with the size of the economy. We then show that the chances of finding a mutually beneficial coordination arrangement may be higher if countries are not too different in size (or in factor productivity). In this perspective, the coordination of national monetary policies which will take place under EMU between countries presenting large structural differences might be a source of tension among the partners for which the adoption of simple convergence rules or of insurance schemes constitutes no remedy.

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