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

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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Year of publication:	2005
Authors:	Michaelis, Jochen
Publisher:	Kassel : Universität Kassel, Fachbereich Wirtschaftswissenschaften
Subject:	Geldpolitik \| Internationale wirtschaftspolitische Koordination \| Allgemeines Gleichgewicht \| Zwei-Länder-Modell \| Exchange rate pass-through \| Terms of Trade \| Nash-Gleichgewicht \| Wohlfahrtseffekt \| beggar-thy-neighbour \| pricing to market \| terms of trade \| international coordination of monetary policies

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Series:	Volkswirtschaftliche Diskussionsbeiträge ; 68
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	479320136 [GVK] hdl:10419/23287 [Handle] RePEc:zbw:kasvdb:68 [RePEc]
Classification:	E40 - Money and Interest Rates. General ; F42 - International Policy Coordination and Transmission ; F41 - Open Economy Macroeconomics
Source:	EconStor

Persistent link: https://www.econbiz.de/10010263277