Keeping Up with the Joneses: Implications for the Welfare Effects of Monetary Policy in Open Economies

Christian Pierdzioch

No 1166, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: A dynamic general equilibrium two-country optimizing model is used to analyze the welfare effects of monetary policy in open economies. The distinguishing feature of the model is that households' preferences feature a "keeping up with the Joneses" effect. This effect implies that households' utility depends upon the level of their consumption relative to the aggregate level of consumption. The model implies that, depending on the strength of the "keeping up with the Joneses" effect, an expansive monetary policy can be a "beggar-thyself" policy. Moreover, the welfare effects of monetary policy are asymmetric across countries.

Keywords: Monetary policy; Consumption externality; Welfare effects (search for similar items in EconPapers)
JEL-codes: F41 F42 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1166

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