Resource title

On the Welfare Effects of Monetary Policy When Households Try to Keep Up with the Rest of the World

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Resource description

We develop a dynamic general equilibrium two-economy model in order to analyze the welfare effects of monetary policy in open economies. The model features two distortions: one distortion due to monopolistic competition, and one distortion due to a consumption externality. This consumption externality arises because households? preferences feature a ?keeping up with the rest of the world? effect. This effect implies that households? utility depends upon the level of their consumption relative to the average consumption in the world. We show that, depending on the relative magnitude of the monopolistic distortion and the consumption externality, an expansive monetary policy can result in an increase or a decrease of households? welfare.

Resource author

Christian Pierdzioch, Serkan Yener

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Resource publish date

Resource language

eng

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text/html

Resource resource URL

http://hdl.handle.net/10419/17741

Resource license

Adapt according to the presented license agreement and reference the original author.