Discussion paper

DP2757 Price Stability as a Nash Equilibrium in Monetary Open-Economy Models

A two-country dynamic general-equilibrium model with imperfect competition and price stickiness is considered. This work shows the conditions under which price stability can implement the flexible-price allocation as a Nash equilibrium. This is possible if and only if both countries maintain a certain positive degree of monopolistic competition. In such equilibrium, the monetary policymakers have no incentive to surprise price setters ex post.

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Citation

Benigno, P and G Benigno (2001), ‘DP2757 Price Stability as a Nash Equilibrium in Monetary Open-Economy Models‘, CEPR Discussion Paper No. 2757. CEPR Press, Paris & London. https://cepr.org/publications/dp2757