Abstract
In this study we propose a model for excessive volatility regulation. The model deals with the control of shocks in capital markets. After describing a transmission mechanism that transfers shocks in a macroeconomic variable, we establish a model how to control the shocks in the framework. Two economies are considered with alternative constellations in coordination of policies. Spillover effects under coordination are less severe, than the spillover effects under Nash equilibrium in the case of comovements of asset volatilities. In other terms, coordination helps to cure the contagious effects, in the case, where two countries are affected by the same spillover effect in the same direction.
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Notes
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Compare Frankel et al. (1990) for implications of policy coordination in capital markets.
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Kilic, E. (2017). Monetary Coordination and Regulation Policies of Spillover Effects on Asset Dynamics. In: Hacioğlu, Ü., Dinçer, H. (eds) Global Financial Crisis and Its Ramifications on Capital Markets. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-47021-4_11
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DOI: https://doi.org/10.1007/978-3-319-47021-4_11
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