Country-specific shocks and optimal monetary policy
Hyeongwoo Kim ()
Economics Bulletin, 2008, vol. 5, issue 23, 1-9
This paper studies optimal monetary policy responses to country-specific shocks in a simple two-country new open macroeconomic model that features sticky-price and local-currency pricing. Technology shocks in the home country are allowed to diffuse to the foreign country with a one-period lag, and vice versa. We find, even in the presence of price-stickiness and local-currency pricing, real shocks may generate market overreaction, to which central banks respond by implementing contractionary monetary policy. This is exactly opposite to the Devereux and Engel's (2003) prediction and many other''s. However, it may be consistent with empirical evidence of rising nominal interest rates during economic boom.
JEL-codes: E5 F3 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-08e50017
Access Statistics for this article
More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().