Should the Core Fear the Outs? Price Setting Practices and International Monetary Transmission
WP Series in Economics and Finance No. 203
22 Pages Posted: 7 Feb 1998
Date Written: November 4, 1997
This paper examines the response of national consumption, production and welfare to asymmetric monetary shocks. We do so in a two-country model (country "Core" and country "Out") characterized by monopolistic competition and price rigidities. A large degree of goods market segmentation and local currency pricing leads to monetary policy having beggar-thy-neighbor effects. Increased price setting in the Core currency by Out lessens the negative spill-over on Core from Out monetary policy. It has a negative impact on the welfare spill-overs on Out from Core monetary policy.
JEL Classification: F36, F41, F42
Suggested Citation: Suggested Citation