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Optimal Monetary Policy with Endogenous Export Participation

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  • Dudley Cooke

    (University of Exeter)

Abstract

This paper studies optimal monetary policy in an open economy with firm heterogeneity and monopolistic competition. I consider a two-country dynamic general equilibrium model where firms make decisions to enter and exit the domestic and export markets. I show that endogenous export participation creates an incentive for policymakers to set high interest rates. This leads to high long-run inflation. Firm entry magnifies the welfare cost of inflation generating large gains to international monetary cooperation. (Copyright: Elsevier)

Suggested Citation

  • Dudley Cooke, 2016. "Optimal Monetary Policy with Endogenous Export Participation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 21, pages 72-88, July.
  • Handle: RePEc:red:issued:12-204
    DOI: 10.1016/j.red.2015.03.003
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    References listed on IDEAS

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    Cited by:

    1. Fabio Ghironi, 2018. "Macro needs micro," Oxford Review of Economic Policy, Oxford University Press, vol. 34(1-2), pages 195-218.
    2. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2008. "Monopoly Power and Endogenous Product Variety: Distortions and Remedies," NBER Working Papers 14383, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Optimal monetary policy; Export participation; Working capital;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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