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Price stability in open economies

Benigno, Gianluca and Benigno, Pierpaolo (2003) Price stability in open economies. Review of Economic Studies, 70 (4). pp. 743-764. ISSN 0034-6527

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Identification Number: 10.1111/1467-937X.00265

Abstract

This paper studies the theoretical 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. Importantly, we show that cooperative and non-cooperative solutions do not coincide despite market completeness and producer currency pricing. We study the conditions under which quadratic approximations of single countries' welfare can be correctly evaluated by relying only on log-linear approximations of the equilibrium conditions

Item Type: Article
Official URL: http://www.oxfordjournals.org/
Additional Information: © 2003 Review of Economic Studies Ltd
Subjects: H Social Sciences > HB Economic Theory
Sets: Departments > Economics
Collections > Economists Online
Date Deposited: 14 Apr 2011 15:34
Last Modified: 30 May 2014 13:31
URI: http://eprints.lse.ac.uk/id/eprint/35630

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