Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/233283 
Authors: 
Year of Publication: 
2011
Series/Report no.: 
Discussion paper No. 67
Publisher: 
Aboa Centre for Economics (ACE), Turku
Abstract: 
This study shows that the learning by doing (LBD) effect has substantial, both quantitative and qualitative, consequences for the international transmission of monetary policy. LDB implies that a country can increase its productivity-increasing skill level, at the expense of the neighbour, by competitive devaluation engineered through low interest rates. If measured by the cumulative change in output after 12 quarters, LBD increases the harmful effect of competitive devaluation on foreign output by 85Ð125%, when compared to the case without it. If LBD is sufficiently strong and the cross-country substitutability is high (low), it reverses the effect of monetary policy on foreign (domestic) welfare into negative (positive). Moreover, a combination of a high crosscountry substitutability and a sufficiently strong LDB effect implies that competitive devaluation increases both domestic output and welfare, at the expense of foreign output and welfare.
Subjects: 
Beggar-thyself
beggar-thy-neighbour
competitive devaluation
learning by doing
open economy macroeconomics
JEL: 
E52
F30
F41
F44
Document Type: 
Working Paper

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