Optimal Monetary Policy in the Presence of Pricing-to-Market

Jochen Michaelis ()

No 68, Volkswirtschaftliche Diskussionsbeiträge from University of Kassel, Faculty of Economics and Management

Abstract: This paper presents a general-equilibrium framework to revisit the issues of optimal monetary policies and international policy coordination in a two-country model, focusing on the role of a pricing-to-market (PTM) policy by firms. Both countries may be different with respect to PTM. Using the set-up developed by Corsetti and Pesenti (2001a) and Betts and Devereux (2000a,b), we show that (i) for a given Foreign monetary stance, a Home monetary expansion is beneficial for both countries only if Home PTM is at an intermediate range; (ii) in a world Nash equilibrium Home and Foreign welfare are bell-shaped in the degrees of PTM; (iii) relative welfare crucially depends on the degrees of PTM; (iv) there is a welfare gain from cooperation even in the cases of no and full PTM.

Keywords: pricing to market; terms of trade; international coordination of monetary policies (search for similar items in EconPapers)
JEL-codes: E40 F41 F42 (search for similar items in EconPapers)
Date: 2005
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https://www.econstor.eu/bitstream/10419/23287/1/papier6805.pdf (application/pdf)

Related works:
Journal Article: Optimal monetary policy in the presence of pricing-to-market (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kasvdb:68

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