TY - JOUR
T1 - Financial frictions and policy cooperation: A case with monopolistic banking and staggered loan contracts
AU - Fujiwara, Ippei
AU - Teranishi, Yuki
PY - 2017
Y1 - 2017
N2 - Do financial frictions call for cross-border policy cooperation? This paper investigates the implications of financial frictions in the form of staggered loan contracts supplied by monopolistic banks, for monetary policy. Using the linear quadratic (LQ) framework, we show that policy cooperation yields long-run gains in addition to gains from stabilizing inefficient fluctuations over the business cycle, as usually found in models with price rigidities. The Ramsey optimal steady states differ between cooperation and noncooperation. Such gains from cooperation arise irrespective of capital account liberalization.
AB - Do financial frictions call for cross-border policy cooperation? This paper investigates the implications of financial frictions in the form of staggered loan contracts supplied by monopolistic banks, for monetary policy. Using the linear quadratic (LQ) framework, we show that policy cooperation yields long-run gains in addition to gains from stabilizing inefficient fluctuations over the business cycle, as usually found in models with price rigidities. The Ramsey optimal steady states differ between cooperation and noncooperation. Such gains from cooperation arise irrespective of capital account liberalization.
U2 - 10.1016/j.jinteco.2016.09.004
DO - 10.1016/j.jinteco.2016.09.004
M3 - Article
SN - 0022-1996
VL - 104
SP - 19
EP - 43
JO - Journal of International Economics
JF - Journal of International Economics
ER -