A Quantitative Perspective on Optimal Monetary Policy Cooperation between the US and the Euro Area

85 Pages Posted: 2 Apr 2008

See all articles by Stephane Adjemian

Stephane Adjemian

Université du Maine - Groupe d' Analyse des Itineraires et Niveaux Salariaux (GAINS); University of Angers - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP)

Matthieu Darracq Paries

European Central Bank (ECB)

Frank Smets

European Central Bank (ECB); KU Leuven - Center for Economic Studies

Date Written: March 1, 2008

Abstract

The objective of this paper is to examine the main features of optimal monetary policy cooperation within a micro-founded macroeconometric frame-work. First, using Bayesian techniques, we estimate a two-country dynamic stochastic general equilibrium (DSGE) model for the United States (US) and the euro area (EA). The main features of the new open economy macro-economics (NOEM) are embodied in our framework: in particular, imperfect exchange rate pass-through and incomplete financial markets inter-nationally. Each country model incorporates the wide range of nominal and real frictions found in the closed-economy literature: staggered price and wage settings, variable capital utilization and fixed costs in production. Then, using the estimated parameters and disturbances, we study the properties of the optimal monetary policy cooperation through welfare analysis, impulse responses and variance decompositions.

Keywords: DSGE models, Optimal monetary policy, new open economy macroeconomics, Bayesian estimation

JEL Classification: E4, E5, F4

Suggested Citation

Adjemian, Stéphane A. and Darracq Paries, Matthieu and Smets, Frank, A Quantitative Perspective on Optimal Monetary Policy Cooperation between the US and the Euro Area (March 1, 2008). ECB Working Paper No. 884, Available at SSRN: https://ssrn.com/abstract=1105364

Stéphane A. Adjemian

Université du Maine - Groupe d' Analyse des Itineraires et Niveaux Salariaux (GAINS) ( email )

72085 Le Mans Cedex 9
France

University of Angers - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP) ( email )

Ecole Normale Superieure
48 boulevard Jourdan
75014 Paris
France

Matthieu Darracq Paries

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+496913446631 (Phone)
+496913447604 (Fax)

Frank Smets (Contact Author)

European Central Bank (ECB) ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49 69 1344 6550 (Phone)
+49 69 1344 6575 (Fax)

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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