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Optimal monetary rules and internationalized production
Author(s) -
Cavallari Lilia
Publication year - 2004
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.240
Subject(s) - economics , production (economics) , multinational corporation , monetary policy , monetary economics , monetary theory , monetary hegemony , monetary system , international finance , international economics , macroeconomics , finance
This paper explores the implications of international location of production for the optimal design of monetary policy in a framework that allows for price discrimination across international markets. By introducing multinational production in a dynamic open economy, the paper shows that optimal monetary rules do not react to foreign cyclical conditions. The paper further shows that non‐cooperative monetary rules cannot restore the flexible price allocation while international monetary cooperation can do so. Copyright © 2004 John Wiley & Sons, Ltd.