Excess Capacity, Monopolistic Competition, and International Transmission of Monetary Disturbances
AbstractA stochastic two-country neoclassical rational expectations model with sticky prices -- optimally set by monopolistically competitive firms -- and possible excess capacity is developed to examine international spillover effects on output of monetary disturbances. The Mundell-Fleming model predicts that monetary expansion at home leads to recession abroad. In contrast, our main result is that spillover effects of monetary policy may be either positive or negative, depending upon whether the intertemporal elasticity of substitution in consumption exceeds the intratemporal elasticity of substitution. The model in addition is used to determine nominal and real interest rates, exchange rates, and other asset prices.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2262.
Date of creation: May 1987
Date of revision:
Publication status: published as The Economic Journal, Vol. 99, No. 397, pp. 785-805, (September 1989).
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Other versions of this item:
- Svensson, Lars E O & van Wijnbergen, Sweder, 1989. "Excess Capacity, Monopolistic Competition, and International Transmission of Monetary Disturbances," Economic Journal, Royal Economic Society, vol. 99(397), pages 785-805, September.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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