Welfare effects of monetary policy in an economy with vertical production and trade: An analysis based on the perspective of local currency pricing

Kohjiro Dohwa

Economic Modelling, 2014, vol. 41, issue C, 408-420

Abstract: By incorporating the factor of firms' asymmetric price setting behavior into the two-country model with vertical production and trade, we analyze how one country's monetary policy affects the welfare of both countries. We show that an expansionary monetary policy has (i) a beggar-thyself effect if the ratio of the non-expanding country's intermediate goods firms that set their export prices in the local currency is significantly low and (ii) a prosper-thy-neighbor effect in our model regardless of the ratio of either country's intermediate goods firms that set their export prices in the local currency.

Keywords: Local currency pricing; Vertical production and trade; Monetary policy; Beggar-thyself; Prosper-thy-neighbor (search for similar items in EconPapers)
JEL-codes: F41 F42 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:41:y:2014:i:c:p:408-420

DOI: 10.1016/j.econmod.2014.03.001

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