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Optimal Monetary Policy in Open Economies with Incomplete Markets

Author

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  • Matthew Hoelle

Abstract

In stochastic settings of large open economies, the monetary policies of central banks have real effects. This paper considers a simple N-country model with homogeneous households in each country and conventional central bank policy (open market operations). The conditions for Pareto effi ciency are characterized. Symmetric policies, or even policies in which both countries adopt some form of targeting rule, are not consistent with Pareto effi ciency (generically).

Suggested Citation

  • Matthew Hoelle, 2014. "Optimal Monetary Policy in Open Economies with Incomplete Markets," Purdue University Economics Working Papers 1279, Purdue University, Department of Economics.
  • Handle: RePEc:pur:prukra:1279
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    File URL: https://business.purdue.edu/research/working-papers-series/2014/1279Hoelle_Open_Symmetric.pdf
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    Cited by:

    1. Matthew Hoelle, 2018. "Stationary inflation and Pareto efficiency with incomplete markets and a large open economy," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 115-128, April.

    More about this item

    Keywords

    monetary policy rules; exchange rate; infiation rate targeting; nominal GDP targeting;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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