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Title:Optimal Monetary Policy in the Presence of Pricing-to-Market PDF Logo
Authors:Michaelis, Jochen
Issue Date:2005
Series/Report no.:Volkswirtschaftliche Diskussionsbeiträge / Universität Kassel, Fachbereich Wirtschaftswissenschaften 68
Abstract: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.
Subjects:pricing to market
terms of trade
international coordination of monetary policies
Document Type:Working Paper
Appears in Collections:Volkswirtschaftliche Diskussionsbeiträge, Universität Kassel

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