Optimal monetary rules and internationalized production

Lilia Cavallari

International Journal of Finance & Economics, 2004, vol. 9, issue 2, 175-186

Abstract: This paper explores the implications of international location of production for the optimal design of monetary policy in a framework that allows for price discrimination across international markets. By introducing multinational production in a dynamic open economy, the paper shows that optimal monetary rules do not react to foreign cyclical conditions. The paper further shows that non-cooperative monetary rules cannot restore the flexible price allocation while international monetary cooperation can do so. Copyright © 2004 John Wiley & Sons, Ltd.

Date: 2004
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DOI: 10.1002/ijfe.240

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