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This paper quantitatively explores the interaction effect of forward guidance(FG) on international monetary policy transmission using a standard two-countrynew Keynesian model with a global liquidity trap. First, we show that themagnitude of the constant risk aversion coefficient (CRRA) is important indetermining the beggar-thy-neighbor and prosper-thy-neighbor effects in foreigneconomies when the home country only faces the zero lower bound (ZLB)constraints. Second,we demonstrate that both countries may benefit fromadopting only the home country's FG policies if the home central bank onlyfaces the ZLB. Third, we find the potential benefit of the FG interactioneffect between two countries. Thus, we document the possibility that home andforeign central banks can benefit from monetary policy coordination by adoptingthe same duration of FG quarters.

The international forward guidance transmission under a global liquidity trap