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Beggar-thyself or beggar-thy-neighbour? The welfare effects of monetary policy

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  • Tervala, Juha
  • Engler, Philipp

Abstract

This paper examines whether monetary expansion is a beggar-thyself or beggar-thy-neighbour policy. Obstfeld and Rogoff (1995) show that monetary expansion under producer currency pricing increases domestic and foreign overall welfare, in cases where the crosscountry substitutability is high. If the cross-country substitutability is low, then monetary expansion is a beggar-thyself policy that reduces domestic welfare and increases foreign welfare (Corsetti & Pesenti 2001; Tille 2001). In this paper, we will show that regardless of whether the cross-country substitutability is high or low, monetary expansion is always a beggar-thyself policy in the short run. --

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Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2010/6.

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Date of creation: 2010
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Handle: RePEc:zbw:fubsbe:20106

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Keywords: Open economy macroeconomics; monetary policy; beggar-thyself; beggar-thy-neighbour;

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References

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  1. Ganelli, Giovanni & Tervala, Juha, 2010. "Public infrastructures, public consumption, and welfare in a new-open-economy-macro model," Journal of Macroeconomics, Elsevier, Elsevier, vol. 32(3), pages 827-837, September.
  2. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1131, C.E.P.R. Discussion Papers.
  3. Giancarlo Corsetti & Paolo Pesenti, 2001. "Welfare And Macroeconomic Interdependence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(2), pages 421-445, May.
  4. Juha Tervala, 2010. "The International Transmission of Monetary Policy in a Dollar Pricing Model," Open Economies Review, Springer, Springer, vol. 21(5), pages 629-654, November.
  5. Philip R. Lane & Giovanni Ganelli, 2002. "Dynamic General Equilibrium Analysis: The Open Economy Dimension," Trinity Economics Papers, Trinity College Dublin, Department of Economics 200212, Trinity College Dublin, Department of Economics.
  6. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(5), pages 947-985, October.
  7. Lane, P, 1999. "The New Open Economy Macroeconomics: A Survey," Trinity Economics Papers, Trinity College Dublin, Department of Economics 993, Trinity College Dublin, Department of Economics.
  8. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
  9. Christian Pierdzioch, 2005. "Capital Mobility, Consumption Substitutability and the Effects of Monetary Policy in Open Economies," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 6(1), pages 79-94, 02.
  10. Cedric Tille, 2005. "Financial integration and the wealth effect of exchange rate fluctuations," Staff Reports, Federal Reserve Bank of New York 226, Federal Reserve Bank of New York.
  11. Warnock, Francis E., 2003. "Exchange rate dynamics and the welfare effects of monetary policy in a two-country model with home-product bias," Journal of International Money and Finance, Elsevier, Elsevier, vol. 22(3), pages 343-363, June.
  12. Giancarlo Corsetti, 2007. "New Open Economy Macroeconomics," RSCAS Working Papers, European University Institute 2007/27, European University Institute.
  13. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 24(10), pages 1405-1423, September.
  14. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262150476, December.
  15. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, Elsevier, vol. 50(1), pages 215-244, February.
  16. Tille, Cedric, 2001. "The role of consumption substitutability in the international transmission of monetary shocks," Journal of International Economics, Elsevier, Elsevier, vol. 53(2), pages 421-444, April.
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Cited by:
  1. Juha Tervala, 2011. "International Welfare Effects of Monetary Policy," Discussion Papers, Aboa Centre for Economics 66, Aboa Centre for Economics.
  2. Philipp Engler, 2011. "Monetary Policy and Unemployment in Open Economies," NCER Working Paper Series, National Centre for Econometric Research 77, National Centre for Econometric Research.

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