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Price Stability in Open Economies (2003)
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| Venue: | Review of Economic Studies |
| Citations: | 90 - 0 self |
BibTeX
@ARTICLE{Benigno03pricestability,
author = {Gianluca Benigno and Pierpaolo Benigno},
title = {Price Stability in Open Economies},
journal = {Review of Economic Studies},
year = {2003}
}
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Abstract
This paper studies the conditions under which price stability is the optimal policy in a two-country open-economy model with imperfect competition and price stickiness. Special conditions on the levels of country-specific distortionary taxation and the intratemporal and intertemporal elasticities of substitution need to be satisfied. These restrictions apply to both cooperative and non-cooperative settings. Most importantly, we show that cooperative and non-cooperative solutions do not coincide despite market completeness and producer currency pricing. In this framework, our analysis suggests a role for international policy coordination. 1
Keyphrases
price stability open economy price stickiness market completeness non-cooperative setting intertemporal elasticity producer currency pricing substitution need imperfect competition optimal policy special condition international policy coordination country-specific distortionary taxation non-cooperative solution paper study two-country open-economy model
