In recent years, many countries have instituted monetary reforms aimed at improving anti-inflation credibility. Is it a problem, however, that international welfare spillover effects seldom receive much consideration in the design of monetary reforms? Surprisingly, the answer may be no. Under plausible conditions, as domestic rules improve and international financial markets become more complete, the Nash and cooperative monetary rule setting games converge. We base our analysis on a utility-theoretic sticky-wage (new open economy macroeconomics) model; the question we pose simply could not have been adequately formulated using earlier models of monetary cooperation.
An earlier version of this paper circulated as "Do We Really Need a New International Monetary Compact?" NBER Working Paper #7864, August 2000.
© 2002 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology. Posted with the permission of MIT Press. One copy may be printed for individual use only.