Pricing-to-market and optimal interest rate policy

Dudley Cooke

No 187, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: I study optimal interest rate policy in a small open economy with consumer search in the product market. When there are search frictions, firms price-to-market, with implications for the design of monetary policy. Country-specific shocks generate deviations from the law of one price for traded goods which monetary policy acts to stabilize by influencing firm markups. However, stabilizing law of one price deviations results in greater fluctuations in output.

Keywords: interest rates; monetary policy; price (search for similar items in EconPapers)
JEL-codes: E31 E52 F41 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2014-08-01
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mkt, nep-mon and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:187

DOI: 10.24149/gwp187

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