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Competitive depreciation and the role of distorting taxes in an interdependent economy

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  • Takamatsu, Satoko
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    This paper investigates the manners in which international cooperation in monetary policies affects the rate of inflation in a two-country sticky-price model. Within reasonable parameter values, international monetary coordination increases the steady-state inflation for given tax policies. When the tax regime is endogenously chosen, however, self-oriented monetary policies can engage in competitive depreciation and induce a higher average inflation than the first best inflation rate.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0261560612001313
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    Article provided by Elsevier in its journal Journal of International Money and Finance.

    Volume (Year): 32 (2013)
    Issue (Month): C ()
    Pages: 462-477

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    Handle: RePEc:eee:jimfin:v:32:y:2013:i:c:p:462-477
    DOI: 10.1016/j.jimonfin.2012.05.022
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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