Home-Product Bias, Capital Mobility, and the Effects of Monetary Policy Shocks in Open Economies

Christian Pierdzioch

No 1141, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: This paper uses a dynamic general equilibrium two-country optimizing model to analyze the consequences of international capital mobility for the effects of monetary policy in open economies. The model shows that the difference between the short-run output effects of monetary policy shocks in a world of high capital mobility and those in a world of low capital mobility decreases if households have a home-product bias in preferences. This result implies that, in contrast to conventional wisdom derived from the textbook Mundell-Fleming model, the empirically observed integration of international financial markets need not result in a significant change in the propagation of monetary policy shocks if households have a strong bias for consuming home products.

Keywords: Monetary Policy; Capital mobility; Home-product bias (search for similar items in EconPapers)
JEL-codes: F32 F36 F41 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1141

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