NDLI: Inflation in Open Economies with Complete Markets

Content Provider	Springer Nature Link
Author	Celentani, Marco Conde Ruiz, J. Ignacio Desmet, Klaus
Copyright Year	2006
Abstract	This paper uses an overlapping generations model to analyze monetary policy in a two-country model with asymmetric shocks. Agents insure against risk through the exchange of a complete set of real securities. Each central bank is able to commit to the contingent monetary policy rule that maximizes domestic welfare. In an attempt to improve their country’s terms of trade of securities, central banks choose to commit to costly inflation in favorable states of nature. In equilibrium the effects on the terms of trade wash out, leaving both countries worse off. Countries facing asymmetric shocks may therefore gain from monetary cooperation.
Starting Page	271
Ending Page	291
Page Count	21
File Format	PDF
ISSN	09382259
Journal	Economic Theory
Volume Number	31
Issue Number	2
e-ISSN	14320479
Language	English
Publisher	Springer-Verlag
Publisher Date	2006-04-11
Publisher Place	Berlin, Heidelberg
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Inflation Risk sharing Security markets Terms of trade Monetary cooperation Currency union Analysis Economics general Economic Theory
Content Type	Text
Resource Type	Article
Subject	Economics and Econometrics

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Inflation in Open Economies with Complete Markets