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Relative Price Distortion and Optimal Monetary Policy in Open Economies

Jinill Kim, Andrew Levin () and Tack Yun ()

No 211, Computing in Economics and Finance 2006 from Society for Computational Economics

Abstract: This paper addresses three issues on the conduct of monetary policy in open economies on the basis of a two-country model with Calvo-type sticky prices. Is the isomorphism of the optimal policy problems between closed and open economies robust to whether the foreign country is buffeted by cost-push shocks? How can we obtain a linear quadratic approximation that replicates the key results of the original optimal policy problem, especially when there is an analytical solution to the original problem in the presence of initial price dispersion? What are optimal policy recommendations for the central banks in open economies when both cost-push shock and initial price dispersion exist?

Keywords: Cost-Push Shocks; Relative Price Distortion; Interdependence; Open Economy; Optimal Policy (search for similar items in EconPapers)
JEL-codes: E52 F33 F41 (search for similar items in EconPapers)
Date: 2006-07-04
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://repec.org/sce2006/up.2713.1140645427.pdf (application/pdf)

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Journal Article: Relative Price Distortion and Optimal Monetary Policy in Open Economies (2008) Downloads
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