Competitive depreciation and the role of distorting taxes in an interdependent economy

Satoko Takamatsu

Journal of International Money and Finance, 2013, vol. 32, issue C, 462-477

Abstract: This paper investigates the manners in which international cooperation in monetary policies affects the rate of inflation in a two-country sticky-price model. Within reasonable parameter values, international monetary coordination increases the steady-state inflation for given tax policies. When the tax regime is endogenously chosen, however, self-oriented monetary policies can engage in competitive depreciation and induce a higher average inflation than the first best inflation rate.

Keywords: Competitive depreciation; Inflation; Welfare spillover; Monetary policy; International cooperation (search for similar items in EconPapers)
JEL-codes: E52 E63 F42 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:32:y:2013:i:c:p:462-477

DOI: 10.1016/j.jimonfin.2012.05.022

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