Startseite Optimal monetary policy in a model of vertical production and trade with reference currency
Artikel
Lizenziert
Nicht lizenziert Erfordert eine Authentifizierung

Optimal monetary policy in a model of vertical production and trade with reference currency

  • Liutang Gong , Chan Wang EMAIL logo und Heng-Fu Zou
Veröffentlicht/Copyright: 9. Oktober 2018

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.

JEL Classification: E5; F3; F4

References

Benigno, G., and P. Benigno. 2003. “Price Stability in Open Economies.” Review of Economic Studies 70: 743–764.10.1111/1467-937X.00265Suche in Google Scholar

Betts, C., and M. B. Devereux. 2000. “Exchange Rate Dynamics in a Model of Pricing-to-Market.” Journal of International Economics 50: 215–244.10.1016/S0022-1996(98)00036-1Suche in Google Scholar

Bils, M., and P. J. Klenow. 2004. “Some Evidence on the Importance of Sticky Prices.” Journal of Political Economy 112: 947–985.10.1086/422559Suche in Google Scholar

Bridgman, B. 2012. “The rise of Vertical Specialization Trade.” Journal of International Economics 86: 133–140.10.1016/j.jinteco.2011.08.016Suche in Google Scholar

Campa, J. M., and L. S. Goldberg. 2005. “Exchange Rate Pass through into Import Prices.” The Review of Economics and Statistics 87: 679–690.10.1162/003465305775098189Suche in Google Scholar

Canzoneri, M. B., R. E. Cumby, and B. T. Diba. 2005. “The Need for International Policy Coordination: what’s Old, what’s New, what’s Yet to Come?” Journal of International Economics 66: 363–384.10.1016/j.jinteco.2004.03.005Suche in Google Scholar

Clarida, R., J. Gali, and M. Gertler. 2002. “A Simple Framework for International Monetary Policy Analysis.” Journal of Monetary Economics 49: 879–904.10.1016/S0304-3932(02)00128-9Suche in Google Scholar

Clark, T. E. 1999. “The Responses of Prices at Different Stages of Production to Monetary Policy Shocks.” The Review of Economics and Statistics 81: 420–433.10.1162/003465399558355Suche in Google Scholar

Cooley, T. F., and G. D. Hansen. 1989. “The Inflation Tax in a Real Business Cycle Model.” American Economic Review 79 (4): 733–748.10.4324/9780203070710.ch11Suche in Google Scholar

Corsetti, G., and P. Pesenti. 2001. “Welfare and Macroeconomic Interdependence.” Quarterly Journal of Economics 116: 421–445.10.1162/00335530151144069Suche in Google Scholar

Corsetti, G., and P. Pesenti. 2005. “International Dimensions of Optimal Monetary Policy.” Journal of Monetary Economics 52: 281–305.10.1016/j.jmoneco.2004.06.002Suche in Google Scholar

Devereux, M. B., and C. Engel. 2003. “Monetary Policy in the Open Economy Revisited: Price Setting and Exchange Rate Flexibility.” Review of Economic Studies 70: 765–783.10.1111/1467-937X.00266Suche in Google Scholar

Devereux, M. B., and C. Engel. 2007. “Expending Switching Versus Real Exchange Rate Stabilization: Competing Objectives for Exchange Rate Policy.” Journal of Monetary Economics 54: 2346–2374.10.1016/j.jmoneco.2006.12.013Suche in Google Scholar

Devereux, M. B., K. Shi, and J. Xu. 2007. “Global Monetary Policy Under a Dollar Standard.” Journal of International Economics 71: 113–132.10.1016/j.jinteco.2005.12.007Suche in Google Scholar

Feenstra, Robert C. 1998. “Integration of Trade and Disintegration of Production in the Global Economy.” Journal of Economics Perspectives 12: 31–50.10.1257/jep.12.4.31Suche in Google Scholar

Feldstein, M. 1992. “The Case Against EMU.” The Economist 19–22.Suche in Google Scholar

Friedman, M. 1953. The Case for Flexible Exchange Rates, in Essays in Positive Economics. Chicago: Chicago University Press.Suche in Google Scholar

Goldberg, L., and C. Tille. 2008. “Vehicle Currency Use in International Trade.” Journal of International Economics 76: 177–192.10.1016/j.jinteco.2008.07.001Suche in Google Scholar

Goldberg, L., and C. Tille. 2009. “Macroeconomic Interdependence and the International Role of the Dollar.” Journal of Monetary Economics 56: 990–1003.10.1016/j.jmoneco.2009.09.008Suche in Google Scholar

Gong, Liutang, Chan Wang, and Heng-fu Zou. 2017 (2) 14. “Optimal Exchange-Rate Policy in a Model of Local-Currency Pricing with Vertical Production and Trade.” Open Economies Review 28 (1): 125–147.10.1007/s11079-016-9415-y.Suche in Google Scholar

Gopinath, G., O. Itskhoki, and R. Rigobon. 2010. “Currency Choice and Exchange Rate Pass-Through.” American Economic Review 100 (1): 304–336.10.1257/aer.100.1.304Suche in Google Scholar

Hummels, D., I. Jun, and Kei-Mu Yi. 2001. “The Nature and Growth of Vertical Specialization in World Trade.” Journal of International Economics 54: 75–96.10.1016/S0022-1996(00)00093-3Suche in Google Scholar

Hummels, D., R. Dana, and Kei-Mu Yi. 1998. “Vertical Specialization and the Changing Nature of World Trade.” Economic Policy Review 4: 79–99.Suche in Google Scholar

Liu, Z., and E. Pappa. 2008. Gains from International Monetary Policy Coordination: Does it Pay to be Different?” Journal of Economic Dynamics and Control 32: 2085–2117.10.1016/j.jedc.2007.08.004Suche in Google Scholar

Mundell, Robert. 1961. “A Theory of Optimum Currency Areas.” American Economic Review 51: 657–665.Suche in Google Scholar

Murphy, K. M., A. Shleifer, and R. W. Vishny. 1989. “Building Blocks of Market Clearing Business Cycle Models.” NBER Macroeconomics Annual 4: 247–287.10.1086/654111Suche in Google Scholar

Nakamura, E., and J. Steinsson. 2008. “Five Facts about Prices: a Reevaluation of Menu Cost Models.” The Quarterly Journal of Economics 123: 1415–1464.10.1162/qjec.2008.123.4.1415Suche in Google Scholar

Obstfeld, M., and K. Rogoff. 1995. “Exchange Rate Dynamics Redux.” Journal of Political Economy 103: 624–660.10.1086/261997Suche in Google Scholar

Obstfeld, M., and K. Rogoff. 2001. “Risk and Exchange Rates.” Prepared for the conference in honor of Assaf Razin.Suche in Google Scholar

Obstfeld, M., and K. Rogoff. 2000. “New Directions for Stochastic Open Economy Models.” Journal of International Economics 50: 117–153.10.1016/S0022-1996(99)00034-3Suche in Google Scholar

Obstfeld, M., and K. Rogoff. 2002. “Global Implications of Self-Oriented National Monetary Rules.” Quarterly Journal of Economics 117: 503–535.10.1162/003355302753650319Suche in Google Scholar

Pappa, E. 2004. “Do the ECB and the Fed Really Need to Cooperate? Optimal Monetary Policy in a Two-Country World.” Journal of Monetary Economics 51: 753–779.10.1016/j.jmoneco.2003.06.006Suche in Google Scholar

Rabitsch, K. 2012. “The Role of Financial Market Structure and the Trade Elasticity for Monetary Policy in Open Economies.” Journal of Money, Credit and Banking 44: 603–629.10.1111/j.1538-4616.2012.00503.xSuche in Google Scholar

Shi, K., and J. Y. Xu. 2007. “Optimal Monetary Policy with Vertical Production and Trade.” Review of International Economics 15 (3): 514–537.10.1111/j.1467-9396.2007.00688.xSuche in Google Scholar

Shi, K., and J. Y. Xu. 2010. “Twin Dollarization and Exchange Rate Policy.” Journal of International Economics 81: 109–121.10.1016/j.jinteco.2010.01.005Suche in Google Scholar

Sutherland, A. 2002. “International Monetary Policy Coordination and Financial Market Integration.” ECB Working Paper No. 174.10.2139/ssrn.358108Suche in Google Scholar

Tille, C. 2001. “The Role of Consumption Substitutability in the International Transmission of Monetary Shocks.” Journal of International Economics 53: 421–444.10.1016/S0022-1996(00)00071-4Suche in Google Scholar

Wang, C., and H. F. Zou. 2013. “On the Efficiency of Monetary and Fiscal Policy in Open Economies.” Annals of Economics and Finance 14: 179–206.Suche in Google Scholar

Wang, C., and H. F. Zou. 2015. “Optimal Monetary Policy Under a Global Dollar Standard: the Effect of Vertical Trade and Production.” Open Economies Review 126: 121–137.10.1007/s11079-014-9322-zSuche in Google Scholar

Yi, K.-M. 2003. “Can vertical Specialization Explain the Growth of World Trade?” Journal of Political Economy 111: 52–102.10.1086/344805Suche in Google Scholar

Yi, K.-M. 2010. “Can Multistage Production Explain the Home Bias in Trade?” American Economic Review 100 (1): 364–393.10.1257/aer.100.1.364Suche in Google Scholar

Published Online: 2018-10-09

©2020 Walter de Gruyter GmbH, Berlin/Boston

Artikel in diesem Heft

  1. Contributions
  2. An empirical study on the New Keynesian wage Phillips curve: Japan and the US
  3. Risk averse banks and excess reserve fluctuations
  4. Advances
  5. Signaling in monetary policy near the zero lower bound
  6. Contributions
  7. Robust learning in the foreign exchange market
  8. Foreign official holdings of US treasuries, stock effect and the economy: a DSGE approach
  9. Discretion rather than rules? Outdated optimal commitment plans versus discretionary policymaking
  10. Agency costs and the monetary transmission mechanism
  11. Advances
  12. Optimal monetary policy in a model of vertical production and trade with reference currency
  13. The financial accelerator and marketable debt: the prolongation channel
  14. The welfare cost of inflation with banking time
  15. Prospect Theory and sentiment-driven fluctuations
  16. Contributions
  17. Household borrowing constraints and monetary policy in emerging economies
  18. The macroeconomic impact of shocks to bank capital buffers in the Euro Area
  19. The effects of monetary policy on input inventories
  20. The welfare effects of infrastructure investment in a heterogeneous agents economy
  21. Advances
  22. Collateral and development
  23. Contributions
  24. Financial deepening in a two-sector endogenous growth model with productivity heterogeneity
  25. Is unemployment on steroids in advanced economies?
  26. Monitoring and coordination for essentiality of money
  27. Dynamics of female labor force participation and welfare with multiple social reference groups
  28. Advances
  29. Technology and the two margins of labor adjustment: a New Keynesian perspective
  30. Contributions
  31. Changing demand for general skills, technological uncertainty, and economic growth
  32. Job competition, human capital, and the lock-in effect: can unemployment insurance efficiently allocate human capital
  33. Fiscal policy and the output costs of sovereign default
  34. Animal spirits in an open economy: an interaction-based approach to the business cycle
  35. Ramsey income taxation in a small open economy with trade in capital goods
Heruntergeladen am 4.11.2025 von https://www.degruyterbrill.com/document/doi/10.1515/bejm-2014-0148/html
Button zum nach oben scrollen