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Price Stability as a Nash Equilibrium in Monetary Open-Economy Models

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  • Benigno, Pierpaolo
  • Benigno, Gianluca

Abstract

A two-country dynamic general-equilibrium model with imperfect competition and price stickiness is considered. This work shows the conditions under which price stability can implement the flexible-price allocation as a Nash equilibrium. This is possible if and only if both countries maintain a certain positive degree of monopolistic competition. In such equilibrium, the monetary policymakers have no incentive to surprise price setters ex post.

Suggested Citation

  • Benigno, Pierpaolo & Benigno, Gianluca, 2001. "Price Stability as a Nash Equilibrium in Monetary Open-Economy Models," CEPR Discussion Papers 2757, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2757
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    References listed on IDEAS

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    More about this item

    Keywords

    Price stability; Nash equilibrium; Optimal monetary policy; Open economy;
    All these keywords.

    JEL classification:

    • 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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