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dc.contributor.authorSenay, Ozge
dc.contributor.authorSutherland, Alan James
dc.identifier.citationSenay , O & Sutherland , A J 2019 , ' Optimal monetary policy, exchange rate misalignments and incomplete financial markets ' , Journal of International Economics , vol. 117 , pp. 196-208 .
dc.identifier.otherPURE: 256866841
dc.identifier.otherPURE UUID: 5971f504-f06c-4e80-ba79-f5123fdcce99
dc.identifier.otherScopus: 85061628049
dc.identifier.otherORCID: /0000-0002-0175-3886/work/60426737
dc.identifier.otherORCID: /0000-0002-8310-968X/work/60426899
dc.identifier.otherWOS: 000463687400013
dc.descriptionThis research is supported by ESRC Award Number ES/I024174/1.en
dc.description.abstractRecent literature shows that, when international financial trade is restricted to autarky or a single bond, there are internal and external welfare trade-offs that imply optimal monetary policy, in principle, deviates from inflation targeting in order to offset real exchange rate misalignments. This paper develops a more realistic model of incomplete markets, where there is international trade in multiple assets. The analysis shows that the presence of multiple assets creates a potentially powerful interaction between monetary policy and household portfolio allocation. This interaction is, by definition, not present when there is financial autarky or a single tradeable bond and this paper shows that the interaction with portfolio allocation can imply that optimal monetary policy generates a quantitatively much more significant stabilisation of the real exchange rate gap than implied by simpler models of financial market incompleteness.
dc.relation.ispartofJournal of International Economicsen
dc.rightsCopyright © 2018, Elsevier B.V. This work is made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at
dc.subjectOptimal monetary policyen
dc.subjectFinancial market structureen
dc.subjectCountry Portfoliosen
dc.subjectHB Economic Theoryen
dc.titleOptimal monetary policy, exchange rate misalignments and incomplete financial marketsen
dc.typeJournal articleen
dc.contributor.sponsorEconomic & Social Research Councilen
dc.contributor.institutionUniversity of St Andrews. School of Economics and Financeen
dc.description.statusPeer revieweden

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