Project without external funding

optimal monetary policy in the presence of pricing-to-market


Project Details
Project duration: 01/200210/2002


Abstract
This paper presents a general equlibrium framework to revisit the issues of optimal monetary policies and international policy coordination in a two country model, focussing on the role of a pricing-to-market policy by firms. Both countries may be different with respect to PTM. Using the set-up developed by Corsetti/Pesenti (2001a) and Betts/Devereux (2000a), we show that (i) the xchange rate does not depend on the degrees of PTM; (ii) welfare will rise in both countries, if abd only if home PTM is at an intermdediate range, otherwise monetary policy is either beggar-tyself or beggar thy neighbour; (iii) in a world Nasch equlibrium Home and Foreign welfare are bell-shaped in the degree of PTM, and (iv) there is always a welfare gain from cooperation.

Last updated on 2017-11-07 at 14:52