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Financial Globalization and Monetary Policy
Author:
Michael B. Devereuxnull

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Mr. Alan Sutherlandnull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2007: Issue 279
Language:
English
Publication Date:
19 Dec 2007
DOI:
https://doi.org/10.5089/9781451868425.001
ISBN:
9781451868425
ISSN:
1018-5941
Pages:
32
Keywords:
WP; mover accent; monetary policy
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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What does financial globalization imply for the design of monetary policy? Does the case for price stability change in an environment of large cross country gross asset holdings?. This paper is concerned with the effects of monetary policy under endogenous international portfolio choice and incomplete markets. With endogenous portfolios, monetary policy takes on new importance due to its impact on the distribution of returns on nominal assets. Surprisingly, we find an even stronger case for price stability in this environment. Even without nominal rigidities, price stability has a welfare benefit by enhancing the risk sharing capacity of nominal bond returns.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2007: Issue 279