Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7388266 | Review of Economic Dynamics | 2016 | 17 Pages |
Abstract
This paper studies optimal monetary policy in an open economy with firm heterogeneity and monopolistic competition. I consider a two-country dynamic general equilibrium model where firms make decisions to enter and exit the domestic and export markets. I show that endogenous export participation creates an incentive for policymakers to set high interest rates. This leads to high long-run inflation. Firm entry magnifies the welfare cost of inflation generating large gains to international monetary cooperation.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Dudley Cooke,