Financial Globalization and Monetary Policy

December 19, 2007

Preview Citation

Format: Chicago

Michael B. Devereux, and Alan Sutherland. Financial Globalization and Monetary Policy, (USA: International Monetary Fund, 2007) 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

What does financial globalization imply for the design of monetary policy? Does the case for price stability change in an environment of large cross country gross asset holdings?. This paper is concerned with the effects of monetary policy under endogenous international portfolio choice and incomplete markets. With endogenous portfolios, monetary policy takes on new importance due to its impact on the distribution of returns on nominal assets. Surprisingly, we find an even stronger case for price stability in this environment. Even without nominal rigidities, price stability has a welfare benefit by enhancing the risk sharing capacity of nominal bond returns.

Subject: Bonds, Exchange rates, Price stabilization, Securities markets, Stocks

Keywords: Monetary policy, Mover accent, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/279
Stock No:

WPIEA2007279
ISBN:

9781451868425
ISSN:

1018-5941

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