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International spillover effects and monetary policy activism

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  • Lipinska, Anna

    ()
    (Bank of England)

  • Spange, Morten

    ()
    (Danmarks Nationalbank)

  • Tanaka, Misa

    ()
    (Bank of England)

Abstract

This paper examines how the preferences of a large economy’s central bank affect the trade-off between output and inflation volatility faced by the central bank of a small open economy by analysing the impact of a global cost-push shock. We demonstrate that under the assumption of producer currency pricing, the trade-off faced by the small open economy is likely to worsen as the foreign central bank becomes more focused on output stabilisation relative to inflation stabilisation; but the opposite is true in the case of local currency pricing.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 377.

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Length: 27 pages
Date of creation: 27 Nov 2009
Date of revision:
Handle: RePEc:boe:boeewp:0377

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Keywords: Open economy; policy trade-offs; producer versus local currency pricing;

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Cited by:
  1. Alex Haberis & Anna Lipinska, 2012. "International policy spillovers at the zero lower bound," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2012-23, Board of Governors of the Federal Reserve System (U.S.).
  2. Lipińska, Anna & von Thadden, Leopold, 2009. "Monetary and fiscal policy aspects of indirect tax changes in a monetary union," Working Paper Series, European Central Bank 1097, European Central Bank.

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