Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/185957 
Authors: 
Year of Publication: 
2010
Citation: 
[Journal:] Swiss Journal of Economics and Statistics [ISSN:] 2235-6282 [Volume:] 146 [Issue:] 2 [Publisher:] Springer [Place:] Heidelberg [Year:] 2010 [Pages:] 451-479
Publisher: 
Springer, Heidelberg
Abstract: 
This paper studies monetary policy in an optimizing two-country model. We suppose a two-step production process that is associated with vertical trade. Prices of final consumption goods are sticky and pass-through can be incomplete. Monetary authorities should respond to both home and foreign shocks in this set-up. Which simple, i.e. non-optimal, targeting rule best supports the welfare maximizing policy hinges critically on the degree of the cross-country interdependence in production and the relative importance of productivity and cost-push shocks. We argue that the relative volatility of productivity and cost-push shocks determines whether the monetary authority should follow a price targeting rule whereas the degree of vertical integration determines which simple price targeting rule (producer or consumer price index targeting) is best.
Subjects: 
policy coordination
policy rule
consumer price targeting
producer price targeting
monetary targeting
JEL: 
F41
F42
E52
E58
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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