Inflation in open economies with complete markets

Marco Celentani (), J. Ignacio Conde-Ruiz and Klaus Desmet

No 2004-12, Working Papers from FEDEA

Abstract: This paper uses an overlapping generations model to analyze monetary policy in a two-country model with asymmetric shocks. Agents insure against risk through the exchange of a complete set of real securities. Each central bank is able to commit to the contingent monetary policy rule that maximizes domestic welfare. In an attempt to improve their country's terms of trade of securities, central banks may choose to commit to costly inflation in favorable states of nature. In equilibrium the effects on the terms of trade wash out, leaving both countries worse off. Countries facing asymmetric shocks may therefore gain from monetary cooperation.

New Economics Papers: this item is included in nep-cba, nep-cwa, nep-dge, nep-mac and nep-mon
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Related works:
Journal Article: Inflation in Open Economies with Complete Markets (2007)
Working Paper: Inflation in Open Economies with Complete Markets (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:fda:fdaddt:2004-12

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