 Asymmetries in an open economy modelTeresa Vasconcelos e Sousa Journal of International Money and Finance, 2013, vol. 33, issue C, 358-380 Abstract: This paper revisits interdependence in a NOEM framework introducing two asymmetries in a two-country general equilibrium model of the world economy with imperfect competition and nominal rigidities: a world with asymmetric nominal rigidities, where one country has flexible prices and the other sticky prices, and a world with asymmetric behavior from monetary policymakers, where one country non-optimally sets a constant nominal exchange rate. We show that the welfare loss is not dependent on the variance of the productivity shock in the first asymmetric world. As regards the second asymmetry we show that welfare gains arise under discretionary policy if the shock is higher than expected by agents at the cost of a welfare loss to the other country, whereas under monetary policy with rules a welfare loss happens in both countries. We also call into question the zero lower bound constraint in an open economy, endorsing expectations of price increases as an escape from a liquidity trap. Keywords: International policy cooperation; Optimal monetary policy; Nominal rigidities; International transmission mechanism; Zero lower bound (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:33:y:2013:i:c:p:358-380 DOI: 10.1016/j.jimonfin.2012.11.019 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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