Optimal Monetary Policy in the Presence of Pricing-to-Market

Arbeitspapier

This paper presents a general-equilibrium framework to revisit the issues of optimal monetary policies and international policy coordination in a two-country model, focusing on the role of a pricing-to-market (PTM) policy by firms. Both countries may be different with respect to PTM. Using the set-up developed by Corsetti and Pesenti (2001a) and Betts and Devereux (2000a,b), we show that (i) for a given Foreign monetary stance, a Home monetary expansion is beneficial for both countries only if Home PTM is at an intermediate range; (ii) in a world Nash equilibrium Home and Foreign welfare are bell-shaped in the degrees of PTM; (iii) relative welfare crucially depends on the degrees of PTM; (iv) there is a welfare gain from cooperation even in the cases of no and full PTM.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Volkswirtschaftliche Diskussionsbeiträge ; No. 68

Classification and Topics

• Classification: Wirtschaft ; Money and Interest Rates: General ; International Policy Coordination and Transmission ; Open Economy Macroeconomics
• Subject: pricing to market ; terms of trade ; international coordination of monetary policies ; Geldpolitik ; Internationale wirtschaftspolitische Koordination ; Allgemeines Gleichgewicht ; Zwei-Länder-Modell ; Exchange rate pass-through ; Terms of Trade ; Nash-Gleichgewicht ; Wohlfahrtseffekt ; beggar-thy-neighbour

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Michaelis, Jochen
• Event: Veröffentlichung
• (who): Universität Kassel, Fachbereich Wirtschaftswissenschaften
• (where): Kassel
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/23287