Financial frictions and policy cooperation: A case with monopolistic banking and staggered loan contracts

Ippei Fujiwara; Yuki Teranishi

doi:10.1016/j.jinteco.2016.09.004

Financial frictions and policy cooperation: A case with monopolistic banking and staggered loan contracts

Ippei Fujiwara^*, Yuki Teranishi

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

3 Citations (Scopus)

Abstract

Do financial frictions call for cross-border policy cooperation? This paper investigates the implications of financial frictions in the form of staggered loan contracts supplied by monopolistic banks, for monetary policy. Using the linear quadratic (LQ) framework, we show that policy cooperation yields long-run gains in addition to gains from stabilizing inefficient fluctuations over the business cycle, as usually found in models with price rigidities. The Ramsey optimal steady states differ between cooperation and noncooperation. Such gains from cooperation arise irrespective of capital account liberalization.

Original language	English
Pages (from-to)	19-43
Number of pages	25
Journal	Journal of International Economics
Volume	104
DOIs	https://doi.org/10.1016/j.jinteco.2016.09.004
Publication status	Published - 1 Jan 2017

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10.1016/j.jinteco.2016.09.004

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abstract = "Do financial frictions call for cross-border policy cooperation? This paper investigates the implications of financial frictions in the form of staggered loan contracts supplied by monopolistic banks, for monetary policy. Using the linear quadratic (LQ) framework, we show that policy cooperation yields long-run gains in addition to gains from stabilizing inefficient fluctuations over the business cycle, as usually found in models with price rigidities. The Ramsey optimal steady states differ between cooperation and noncooperation. Such gains from cooperation arise irrespective of capital account liberalization.",

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AB - Do financial frictions call for cross-border policy cooperation? This paper investigates the implications of financial frictions in the form of staggered loan contracts supplied by monopolistic banks, for monetary policy. Using the linear quadratic (LQ) framework, we show that policy cooperation yields long-run gains in addition to gains from stabilizing inefficient fluctuations over the business cycle, as usually found in models with price rigidities. The Ramsey optimal steady states differ between cooperation and noncooperation. Such gains from cooperation arise irrespective of capital account liberalization.

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KW - Linear quadratic problem

KW - Monetary policy in open economies

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ER -

Financial frictions and policy cooperation: A case with monopolistic banking and staggered loan contracts

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