Optimal Policy under Dollar Pricing

Konstantin Egorov and Dmitry Mukhin

American Economic Review, 2023, vol. 113, issue 7, 1783-1824

Abstract: Empirical evidence shows that most international prices are sticky in dollars. This paper studies the policy implications of this fact in the context of an open economy model with general preferences, technologies, asset markets, nominal rigidities, and a rich set of shocks. We show that although monetary policy is less efficient and cannot implement the flexible-price allocation, inflation targeting and a floating exchange rate remain robustly optimal in non-US economies. The capital controls cannot unilaterally improve the allocation and are useful only when coordinated across countries. International cooperation benefits other economies, but is not in the self-interest of the United States.

JEL-codes: E31 E52 F14 F31 F38 F41 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/aer.20200636 (application/pdf)
https://doi.org/10.3886/E184741V1 (text/html)
https://www.aeaweb.org/doi/10.1257/aer.20200636.appx (application/pdf)
https://www.aeaweb.org/doi/10.1257/aer.20200636.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:113:y:2023:i:7:p:1783-1824

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/aer.20200636

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().