Financial Globalization and Monetary Policy
By Michael B. Devereux, Alan Sutherland. Social Science Research Network, 2007
118 citations recorded by the source corpus.
The process of financial globalization has significantly altered the environment in which national monetary policy authorities operate. What implications does this have for the design of monetary policy? The question can be properly addressed only in the context of a model where monetary policy interacts with financial market efficiency. This paper is concerned with the effects of monetary policy when international portfolio choice is endogenous. We analyze the link between monetary policy and gross national bond and equity portfolios. With endogenous portfolio structure and incomplete markets, monetary policy takes on new importance due to its impact on the distribution of returns on nominal assets. Despite this, we find that the case for price stability as an optimal monetary rule still remains. In fact, it is reinforced. Even without nominal price rigidities, price stability has a welfare benefit through its enhancement of the risk sharing properties of nominal bond returns.
View Paper: https://www.semanticscholar.org/paper/c8add1165217d0f251cbacb123ca884cff3f3ce3
How researchers see this paper
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- A. Matsumoto
- Charles M. Engel
- Gita Gopinath
- Michael B. Devereux
- Philip R. Lane
- Doireann Fitzgerald
- G. Zachmann
- Tommaso Monacelli
Citations in the corpus
- Home bias in open economy financial macroeconomics (2013, unknown): “The main advantage of the perturbation methods developed by Devereux and Sutherland (2008a) and Tille and van Wincoop (2008) are: (1) they are very easy to implement as they are close to standard approximation methods used in DSGE models; (2) they can be applied to broad range of environments…”
- The International Diversification Puzzle When Goods Prices are Sticky: It's Really about Exchange-Rate Hedging, Not Equity Portfolios (2009, background): “Devereux and Sutherland (2008) examine a similar model, with a focus on the role of changes in valuation for the international distribution of wealth.”