Optimal Monetary Policy in Small Open Economies: Producer Currency Pricing
60 Pages Posted: 15 Oct 2019
Date Written: October 5, 2019
We establish the share of exports in production as a sufficient statistic for optimal non-cooperative monetary policy. Under financial autarky, markups positively co-move with the export share. For complete markets, markups should be procyclical if the export share is procyclical. When central banks cooperate, markups are constant under complete markets, and countercyclical under financial autarky.
Keywords: Open economy macroeconomics; Optimal monetary policy; Price stability
JEL Classification: E50, F41, F42
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