Abstract
This paper examines optimal monetary policy rules in a model of vertical production and trade with reference currency. As evidenced by empirical findings, we assume that final-goods prices are sticky, but intermediate-goods prices are flexible. We find that even if intermediate-goods prices are flexible, monetary authorities need to respond to the shocks at the stage of intermediate-goods production. We also find that, when a shock occurs at the stage of final-goods production, monetary responses are independent of the expenditure share of final-goods producers on intermediate goods. For the first time in the literature, our model gives a condition under which both countries are willing to participate in monetary cooperation. Thus the gains from cooperation are real. In addition, we compare the volatility of the nominal exchange rate in Nash case with that in cooperative case, and compare the volatility of the nominal exchange rate in our model with that in a model without vertical production and trade as well. We also extend the model to consider a case of dual price stickiness. We find that the change in solution methods completely alters the conclusions of the model.
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©2020 Walter de Gruyter GmbH, Berlin/Boston
Artikel in diesem Heft
- Contributions
- An empirical study on the New Keynesian wage Phillips curve: Japan and the US
- Risk averse banks and excess reserve fluctuations
- Advances
- Signaling in monetary policy near the zero lower bound
- Contributions
- Robust learning in the foreign exchange market
- Foreign official holdings of US treasuries, stock effect and the economy: a DSGE approach
- Discretion rather than rules? Outdated optimal commitment plans versus discretionary policymaking
- Agency costs and the monetary transmission mechanism
- Advances
- Optimal monetary policy in a model of vertical production and trade with reference currency
- The financial accelerator and marketable debt: the prolongation channel
- The welfare cost of inflation with banking time
- Prospect Theory and sentiment-driven fluctuations
- Contributions
- Household borrowing constraints and monetary policy in emerging economies
- The macroeconomic impact of shocks to bank capital buffers in the Euro Area
- The effects of monetary policy on input inventories
- The welfare effects of infrastructure investment in a heterogeneous agents economy
- Advances
- Collateral and development
- Contributions
- Financial deepening in a two-sector endogenous growth model with productivity heterogeneity
- Is unemployment on steroids in advanced economies?
- Monitoring and coordination for essentiality of money
- Dynamics of female labor force participation and welfare with multiple social reference groups
- Advances
- Technology and the two margins of labor adjustment: a New Keynesian perspective
- Contributions
- Changing demand for general skills, technological uncertainty, and economic growth
- Job competition, human capital, and the lock-in effect: can unemployment insurance efficiently allocate human capital
- Fiscal policy and the output costs of sovereign default
- Animal spirits in an open economy: an interaction-based approach to the business cycle
- Ramsey income taxation in a small open economy with trade in capital goods
Artikel in diesem Heft
- Contributions
- An empirical study on the New Keynesian wage Phillips curve: Japan and the US
- Risk averse banks and excess reserve fluctuations
- Advances
- Signaling in monetary policy near the zero lower bound
- Contributions
- Robust learning in the foreign exchange market
- Foreign official holdings of US treasuries, stock effect and the economy: a DSGE approach
- Discretion rather than rules? Outdated optimal commitment plans versus discretionary policymaking
- Agency costs and the monetary transmission mechanism
- Advances
- Optimal monetary policy in a model of vertical production and trade with reference currency
- The financial accelerator and marketable debt: the prolongation channel
- The welfare cost of inflation with banking time
- Prospect Theory and sentiment-driven fluctuations
- Contributions
- Household borrowing constraints and monetary policy in emerging economies
- The macroeconomic impact of shocks to bank capital buffers in the Euro Area
- The effects of monetary policy on input inventories
- The welfare effects of infrastructure investment in a heterogeneous agents economy
- Advances
- Collateral and development
- Contributions
- Financial deepening in a two-sector endogenous growth model with productivity heterogeneity
- Is unemployment on steroids in advanced economies?
- Monitoring and coordination for essentiality of money
- Dynamics of female labor force participation and welfare with multiple social reference groups
- Advances
- Technology and the two margins of labor adjustment: a New Keynesian perspective
- Contributions
- Changing demand for general skills, technological uncertainty, and economic growth
- Job competition, human capital, and the lock-in effect: can unemployment insurance efficiently allocate human capital
- Fiscal policy and the output costs of sovereign default
- Animal spirits in an open economy: an interaction-based approach to the business cycle
- Ramsey income taxation in a small open economy with trade in capital goods