Keeping Up with the Joneses: Implications for the Welfare Effects of Monetary Policy in Open Economies
AbstractA dynamic general equilibrium two-country optimizing model is used to analyze the welfare effects of monetary policy in open economies. The distinguishing feature of the model is that householdsÂ’ preferences feature a "keeping up with the Joneses" effect. This effect implies that householdsÂ’ utility depends upon the level of their consumption relative to the aggregate level of consumption. The model implies that, depending on the strength of the "keeping up with the Joneses" effect, an expansive monetary policy can be a "beggar-thyself" policy. Moreover, the welfare effects of monetary policy are asymmetric across countries.
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1166.
Length: 16 pages
Date of creation: May 2003
Date of revision:
Monetary policy; Consumption externality; Welfare effects;
Find related papers by JEL classification:
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
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