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Please use this identifier to cite or link to this item: http://hdl.handle.net/10023/2601
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Title: The timing of asset trade and optimal monetary policy in dynamic open economies
Authors: Senay, Ozge
Sutherland, Alan
Keywords: HB Economic Theory
Issue Date: 2010
Citation: Senay , O & Sutherland , A 2010 ' The timing of asset trade and optimal monetary policy in dynamic open economies ' Centre for Dynamic Macroeconomic Analysis, Working Paper , no. 1006 , University of St Andrews .
Series/Report no.: Centre for Dynamic Macroeconomic Analysis, Working Paper
Abstract: Using a standard open economy DSGE model, it is shown that the timing of asset trade relative to policy decisions has a potentially important impact on the welfare evaluation of monetary policy at the individual country level. If asset trade in the initial period takes place before the announcement of policy, a national policymaker can choose a policy rule which reduces the work effort of households in the policymaker’s country in the knowledge that consumption is fully insured by optimally chosen international portfolio positions. But if asset trade takes place after the policy announcement, this insurance is absent and households in the policymaker’s country bear the full consumption consequences of the chosen policy rule. The welfare incentives faced by national policymakers are very different between the two cases. Numerical examples confirm that asset market timing has a significant impact on the optimal policy rule.
Version: Postprint
URI: http://hdl.handle.net/10023/2601
http://www.st-andrews.ac.uk/economics/CDMA/papers.html#2010WP
Type: Working or discussion paper
Publisher: University of St Andrews
Appears in Collections:University of St Andrews Research
Economics & Finance Research



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