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. While a unilateral monetary expansion increases the production efficiency in each country, it affects terms of trade in … production interdependence magnifies the efficiency-improvement effect while dampening the terms-of-trade effect. As a …
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This paper studies the design of optimal monetary policy (in terms of unconstrained Ramsey allocation) in a framework with sticky prices and matching frictions. Furthermore I consider the role of real wage rigidities. Optimal policy features significant deviations from price stability in...
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