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Title:On the Welfare Effects of Monetary Policy When Households Try to Keep Up with the Rest of the World PDF Logo
Authors:Pierdzioch, Christian
Yener, Serkan
Issue Date:2004
Series/Report no.:Kieler Arbeitspapiere 1198
Abstract: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 externality arises because households? preferences feature a ?keeping up with the rest of the world? effect. This effect implies that households? utility depends upon the level of their consumption relative to the average consumption in the world. We show that, depending on the relative magnitude of the monopolistic distortion and the consumption externality, an expansive monetary policy can result in an increase or a decrease of households? welfare.
Subjects:Monetary policy
Consumption externality
Welfare effects
JEL:F41
F42
Document Type:Working Paper
Appears in Collections:Kieler Arbeitspapiere, IfW
Publikationen von Forscherinnen und Forschern des IfW

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