Optimal Monetary Policy with Endogenous Export Participation

Dudley Cooke ()

Review of Economic Dynamics, 2016, vol. 21, 72-88

Abstract: This paper studies optimal monetary policy in an open economy with firm heterogeneity and monopolistic competition. I consider a two-country dynamic general equilibrium model where firms make decisions to enter and exit the domestic and export markets. I show that endogenous export participation creates an incentive for policymakers to set high interest rates. This leads to high long-run inflation. Firm entry magnifies the welfare cost of inflation generating large gains to international monetary cooperation. (Copyright: Elsevier)

Keywords: Optimal monetary policy; Export participation; Working capital (search for similar items in EconPapers)
JEL-codes: E31 E52 F41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (12)

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DOI: 10.1016/j.red.2015.03.003

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