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Optimal Monetary Policy in the Presence of Pricing-to-Market

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  • Michaelis, Jochen

Abstract

This paper presents a general-equilibrium framework to revisit the issues of optimal monetary policies and international policy coordination in a two-country model, focusing on the role of a pricing-to-market (PTM) policy by firms. Both countries may be different with respect to PTM. Using the set-up developed by Corsetti and Pesenti (2001a) and Betts and Devereux (2000a,b), we show that (i) for a given Foreign monetary stance, a Home monetary expansion is beneficial for both countries only if Home PTM is at an intermediate range; (ii) in a world Nash equilibrium Home and Foreign welfare are bell-shaped in the degrees of PTM; (iii) relative welfare crucially depends on the degrees of PTM; (iv) there is a welfare gain from cooperation even in the cases of no and full PTM.

Suggested Citation

  • Michaelis, Jochen, 2005. "Optimal Monetary Policy in the Presence of Pricing-to-Market," Volkswirtschaftliche Diskussionsbeiträge 68, University of Kassel, Faculty of Economics and Management.
    • Handle: RePEc:zbw:kasvdb:68
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    Cited by:

    1. Dohwa, Kohjiro, 2014. "Welfare effects of monetary policy in an economy with vertical production and trade: An analysis based on the perspective of local currency pricing," Economic Modelling, Elsevier, vol. 41(C), pages 408-420.
    2. Dohwa, Kohjiro, 2018. "The role of local currency pricing in international transmission effects of corporate tax reduction in an economy with vertical production linkage and foreign direct investment," MPRA Paper 86394, University Library of Munich, Germany.
    3. Michaelis, Jochen, 2007. "Internationaler Handel," Volkswirtschaftliche Diskussionsbeiträge 91, University of Kassel, Faculty of Economics and Management.
    4. Eckey, Hans-Friedrich & Kosfeld, Reinhold & Türck, Matthias, 2007. "Anmerkung zur Identifikation von Förderregionen in der Gemeinschaftsaufgabe," Volkswirtschaftliche Diskussionsbeiträge 90, University of Kassel, Faculty of Economics and Management.
    5. Dohwa, Kohjiro, 2018. "The role of local currency pricing in international transmission effects of monetary and productivity shocks in an economy with vertical production linkage and firm entry," MPRA Paper 86351, University Library of Munich, Germany.
    6. Dohwa, Kohjiro, 2015. "Optimal monetary policy in an economy with vertical production and trade: An analysis based on the perspective of local currency pricing," Japan and the World Economy, Elsevier, vol. 36(C), pages 11-20.
    7. Jochen Michaelis & Jakob Palek, 2014. "Optimal Monetary Policy in a Currency Union: Implications of a Country-specific Cost Channel," MAGKS Papers on Economics 201444, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    8. Jochen Michaelis & Heike Minich, 2004. "Inflationsdifferenzen im Euroraum - eine Bestandsaufnahme," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 59(04), pages 379-405, December.
    9. Eckey, Hans-Friedrich & Türck, Matthias, 2005. "Deutsche Innovationsregionen," Volkswirtschaftliche Diskussionsbeiträge 69, University of Kassel, Faculty of Economics and Management.
    10. repec:got:cegedp:35 is not listed on IDEAS
    11. Schmidt, André, 2007. "Per-se-Rule, Rule of Reason und der "more economic approach"," Volkswirtschaftliche Diskussionsbeiträge 92, University of Kassel, Faculty of Economics and Management.
    12. Michaelis, Jochen, 2005. "Zur Reform der Leistungsformen der Pflegeversicherung: Ein familienökonomischer Ansatz," Volkswirtschaftliche Diskussionsbeiträge 74, University of Kassel, Faculty of Economics and Management.
    13. Eckey, Hans-Friedrich & Kosfeld, Reinhold & Türck, Matthias, 2006. "Abgrenzung deutscher Arbeitsmarktregionen," Volkswirtschaftliche Diskussionsbeiträge 81, University of Kassel, Faculty of Economics and Management.
    14. Jerger, Jürgen & Michaelis, Jochen, 2007. "Warum beobachten wir so wenig Arbeitnehmer-Gewinnbeteiligung?," Volkswirtschaftliche Diskussionsbeiträge 94, University of Kassel, Faculty of Economics and Management.

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    More about this item

    Keywords

    pricing to market; terms of trade; international coordination of monetary policies;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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