Monetary policies in interdependent economies: an open economy explanation for base drift and price-level non-trend-stationarities

The Nonstationarity of Money and Prices in Interdependent Economies

“…Conducting policy analysis in this version of the model is very cumbersome, because endogenous variations in the exchange rate enlarge the scope for feedback effects between the two economies. Daniels and VanHoose (1995) computed reduced-form solutions for all four policy parameters under the restrictive assumptions g = d 2 = a = 0 and h t = x* t = 0, and they verified that both q 2 and q* 2 are not equal to one for this special case of the model. Here, we consider g, d 2 , and a as nonzero but model asymmetric shocks as h* t = -h t and x* t = -x t , with s 2 h* = s 2 h and s 2 x* = s 2 x .…”

“…More recently, Daniels and VanHoose (1995) have shown that a similar result can arise from structural and policy interdependence among economies. Their analysis demonstrates that central bank efforts to smooth both home output prices and consumer price indexes (CPIs) is sufficient to induce the optimality of base drift and pricelevel non-trend-stationarities even in the absence of central bank desires to limit variability of interest rates, monetary aggregates, or exchange rates.…”

“…Our framework, as well as the narrower model considered in Daniels and VanHoose (1995), also produces "bygones" base drift as a possible policy outcome. There are two reasons for this.…”

“…In both (5a) and (5b), g is the degree of nominal wage indexation to unanticipated consumer price changes, which is assumed to be identical for both countries. Note that if g = 0, which was assumed to hold in Daniels and VanHoose (1995), then there is no CPI indexation and the amount of output supplied in each nation depends only on the home price prediction error. If g > 0, then nominal wages in each country respond to CPI price prediction errors, which causes each nation's aggregate supply of output to depend on prediction errors of the other nation's price level and the exchange rate.…”

Θεωρητική Και Εμπειρική Διερεύνηση Των Μεσομακροπρόθεσμων Χρηματοδοτήσεων Των Επενδυτικών Τραπεζών Και Των Επιπτώσεων Τους Στην Οικονομική Μεγέθυνση Στα Πλαίσια Των Μεταλλακτικών Τάσεων Του Νομισματοπιστωτικού Και Αναπτυξιακού Περιβάλλοντος

“…• Την οργάνωση και συμμετοχή στη χορήγηση μεγάλων κοινοπρακτικών δανείων (consortium). Daniels J., Vanhoose D., 1995 • Την ανάληψη διάθεσης και έκδοσης τίτλων, με την υποχρέωση αγοράς του μέρους που δεν έχει καλυφθεί με δημόσια εγγραφή (underwriting).…”