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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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Bibliographic Info

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. Giancarlo Corsetti & Paolo Pesenti, 1997. "Welfare and Macroeconomic Interdependence," NBER Working Papers 6307, National Bureau of Economic Research, Inc.
  2. Maurice Obstfeld & Kenneth Rogoff, 1994. "Exchange Rate Dynamics Redux," NBER Working Papers 4693, National Bureau of Economic Research, Inc.
  3. Ganelli, Giovanni & Tervala, Juha, 2010. "Public infrastructures, public consumption, and welfare in a new-open-economy-macro model," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 827-837, September.
  4. Corsetti, Giancarlo, 2007. "New Open Economy Macroeconomics," CEPR Discussion Papers 6578, C.E.P.R. Discussion Papers.
  5. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  6. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  7. Lane, Philip R., 1999. "The New Open Economy Macroeconomics: a Survey," CEPR Discussion Papers 2115, C.E.P.R. Discussion Papers.
  8. Juha Tervala, 2010. "The International Transmission of Monetary Policy in a Dollar Pricing Model," Open Economies Review, Springer, vol. 21(5), pages 629-654, November.
  9. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1405-1423, September.
  10. Obstfeld, Maurice & Rogoff, Kenneth S., 1995. "Exchange Rate Dynamics Redux," Scholarly Articles 12491026, Harvard University Department of Economics.
  11. Tille, Cédric, 2008. "Financial integration and the wealth effect of exchange rate fluctuations," Journal of International Economics, Elsevier, vol. 75(2), pages 283-294, July.
  12. Lane, P.R. & Ganelli, G., 2002. "Dynamic General Equilibrium Analysis: The Open Economy Dimension," CEG Working Papers 20026, Trinity College Dublin, Department of Economics.
  13. 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, vol. 22(3), pages 343-363, June.
  14. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, vol. 50(1), pages 215-244, February.
  15. Christian Pierdzioch, 2005. "Capital Mobility, Consumption Substitutability and the Effects of Monetary Policy in Open Economies," German Economic Review, Verein für Socialpolitik, vol. 6(1), pages 79-94, 02.
  16. Tille, Cedric, 2001. "The role of consumption substitutability in the international transmission of monetary shocks," Journal of International Economics, Elsevier, vol. 53(2), pages 421-444, April.
  17. Mark Bils & Peter J. Klenow, 2002. "Some Evidence on the Importance of Sticky Prices," NBER Working Papers 9069, National Bureau of Economic Research, Inc.
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Cited by:
  1. Juha Tervala, 2011. "International Welfare Effects of Monetary Policy," Discussion Papers 66, Aboa Centre for Economics.
  2. Engler, Philipp, 2011. "Monetary policy and unemployment in open economies," Discussion Papers 2011/24, Free University Berlin, School of Business & Economics.

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