Designing domestic institutions for international monetary policy cooperation: A Utopia?

Details

Serval ID
serval:BIB_86C596423AA7
Type
Article: article from journal or magazin.
Collection
Publications
Title
Designing domestic institutions for international monetary policy cooperation: A Utopia?
Journal
Journal of International Money and Finance
Author(s)
Bilbiie F.O.
ISSN
0261-5606
Publication state
Published
Issued date
04/2011
Peer-reviewed
Oui
Volume
30
Number
3
Pages
393-409
Language
english
Abstract
In a wide variety of international macroeconomic models monetary policy cooperation is optimal, non-cooperative policies are inefficient, but optimal policies can be attained non-cooperatively by optimal design of domestic institutions/contracts. We show that given endogenous institutional design, inefficiencies of non-cooperation cannot and will not be eliminated. We model the delegation stage explicitly and show that subgame perfect, credible contracts (chosen by governments based on individual rationality) are non-zero, but are different from optimal contracts and hence lead to inefficient equilibria. Optimal contracts require cooperation at the delegation stage, which is inconsistent with the advocated non-cooperative nature of the solution. A general solution method for credible contracts and an example from international monetary policy cooperation are considered. Our results feature delegation as an equilibrium phenomenon, explain inefficiencies of existing delegation schemes and hint to a potentially stronger role for supranational authorities in international policy coordination.
Keywords
International monetary policy cooperation, Institutions, Equilibrium optimal delegation, Inflation contracts, Credible, Subgame perfect contracts
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Create date
01/11/2018 10:27
Last modification date
20/08/2019 14:46
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