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