International dimensions of optimal monetary policy |
| |
Authors: | Giancarlo Corsetti Paolo Pesenti |
| |
Affiliation: | a European University Institute, 50133 Florence, Italy b University of Rome III, Rome, Italy c CEPR, London EC1V 7RR, UK d Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045, USA e NBER, Cambridge, MA 02138, USA |
| |
Abstract: | This paper provides a baseline general equilibrium model of optimal monetary policy among interdependent economies with monopolistic firms and nominal rigidities. An inward-looking policy of domestic price stabilization is not optimal when firms’ markups are exposed to currency fluctuations. Such a policy raises exchange rate volatility, leading foreign exporters to charge higher prices vis-à-vis increased uncertainty in the export market. As higher import prices reduce the purchasing power of domestic consumers, optimal monetary rules trade off a larger domestic output gap against lower consumer prices. Optimal rules in a world Nash equilibrium lead to less exchange rate volatility relative to both inward-looking rules and discretionary policies, even when the latter do not suffer from any inflationary (or deflationary) bias. Gains from international monetary cooperation are related in a non-monotonic way to the degree of exchange rate pass-through. |
| |
Keywords: | E31 E52 F42 |
本文献已被 ScienceDirect 等数据库收录! |
|