We develop a dynamic general equilibrium two-economy model in order to analyze the welfare effects of monetary policy in open economies. The model features two distortions: one distortion due to monopolistic competition, and one distortion due to a consumption externality. This consumption...

This paper revisits optimal monetary policy in open economies, in particular, focusing on the noncooperative policy game under local currency pricing in a two-country dynamic stochastic general equilibrium model. We first derive the quadratic loss functions which noncooperative policy makers aim...

In the literature on international monetary policy, the paradigm is that gains from coordination are fairly small. Monetary policy is conducted to stabilize macroeconomic fluctuations and gains from policy coordination arise from preventing national monetary authorities from strategically...

In this paper, I argue that international policy coordination requires to include both monetary as well as fiscal policy because both sides include policy instruments that allow the strategic manipulation of the country's terms of trade. Hence, the coordination of one part of national...

This paper develops a general framework to analyze the welfare consequences of monetary and fiscal shocks in an open economy, focusing on the role of the degree of substitutability between goods produced in different countries. We find that an expansionary shock that would be beneficial in a...

A dynamic general equilibrium two-country optimizing model is used to analyze the welfare effects of monetary policy in open economies. The distinguishing feature of the model is that householdsÂ’ preferences feature a "keeping up with the Joneses" effect. This effect implies that...

We develop a dynamic general equilibrium two-economy model in order to analyze the welfare effects of monetary policy in open economies. The model features two distortions: one distortion due to monopolistic competition, and one distortion due to a consumption externality. This consumption...

This paper studies the welfare impact of a common monetary policy in the context of a two-country, general equilibrium model with liquidity effect and nominal wage contracts, heterogeneous agents, imperfect competition in the labor market, trade in goods, immobility of labor and mobility of...

This paper evaluates simple, non-optimising monetary policy rules in the tradition of the well-known Poole analysis within a general two-country open-economy model of the New Open Economy Macroeconomic framework. Pure money supply rules are compared with simple interest rate rules for the large...

In the literature on international monetary policy, the paradigm is that gains from coordination are fairly small. Monetary policy is conducted to stabilize macroeconomic fluctuations and gains from policy coordination arise from preventing national monetary authorities from strategically...