This paper examines the welfare implications of international monetary co-operation using a stylised two-country New Keynesian general equilibrium model of imperfect information. We show that setting a self-oriented monetary policy rule generally leads to welfare gains relative to passive...

Employing huge economic stimulus packages was a common response of many policy leaders during the past financial crisis. In Germany for instance, the government enacted two fiscal packages with an overall volume of approximately 80 billion Euros. On the other hand, the distortions in the banking...