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| Author: | Benigno, P. |
| Title: | Optimal monetary policy in a currency area |
| Journal: | Journal of International Economics
2004 : JUL, VOL. 63:2, p. 293-320 |
| Index terms: | Monetary policy Optimization Currency Prices Terms of trade Welfare Models |
| Language: | eng |
| Abstract: | This paper investigates how monetary policy (hereafter as: mon-pol.) should be conducted in a 2-region general equilibrium model with monopolistic competition and price stickiness. This framework delivers a simple welfare criterion based on the utility of the consumers, used to evaluate mon-pol. in a currency area. If the two regions share the same degree of nominal rigidity, the terms of trade are completely insulated from mon-pol. and the optimal outcome is obtained by targeting a weighted average of the regional inflation rates. These weights coincide with the economic sizes of the region. |
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