Refine
Year of publication
Document Type
Language
- English (30) (remove)
Keywords
- Difference-in-difference analysis (1)
- Offshoring (1)
- Productivity (1)
- SME (1)
- consumer price targeting (1)
- monetary targeting (1)
- policy coordination (1)
- policy rule (1)
- producer price targeting (1)
Institute
This paper studies monetary policy in an optimizing two-country model. We suppose a two-step production process that is associated with vertical trade. Prices of final consumption goods are sticky and pass-through can be incomplete. Monetary authorities should respond to both home and foreign shocks in this set-up.Which simple, i.e. non-optimal, targeting rule best supports the welfare maximizing policy hinges critically on the degree of the cross-country interdependence in production and the relative importance of productivity and cost-push shocks. We argue that the relative volatility of productivity and cost-push shocks determines whether the monetary authority should follow a price targeting rulewhereas the degree of vertical integration determines which simple price targeting rule (producer or consumer price index targeting) is best.