IMF Working Papers

Portfolio Preference Uncertainty and Gains From Policy Coordination

By Paul R Masson

June 1, 1991

Preview Citation

Format: Chicago

Paul R Masson. Portfolio Preference Uncertainty and Gains From Policy Coordination, (USA: International Monetary Fund, 1991) accessed November 21, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

International macroeconomic policy coordination is generally considered to be made less likely—and less profitable—by the presence of uncertainty about how the economy works. The present paper provides a counter-example, in which increased uncertainty about portfolio preference of investors makes coordination of monetary policy more beneficial. In particular, in the absence of coordination monetary authorities may respond to financial market uncertainty by not fully accommodating demands for increased liquidity, for fear of bringing about exchange rate depreciation. Coordinated monetary expansion would minimize this danger. A theoretical model incorporating an equity market is developed, and the stock market crash of October 1987 is discussed in the light of its implications for monetary policy coordination.

Subject: Asset prices, Consumption, Exchange rates, Financial institutions, Financial markets, Foreign exchange, National accounts, Prices, Stock markets, Stocks

Keywords: Asset prices, Consumption, Equities q move, Equity price, Exchange rate, Exchange rate movement, Exchange rates, Global, Output effects of the portfolio preference shock, Portfolio preference, Portfolio preference uncertainty, Portfolio shift, Preference shift, Preferences of investor, Share parameter, Shares K, Stock markets, Stocks, WP

Publication Details

  • Pages:

    26

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1991/064

  • Stock No:

    WPIEA0641991

  • ISBN:

    9781451848465

  • ISSN:

    1018-5941

Notes

Also published in Staff Papers, Vol. 39, No. 1, March 1992.

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