This article considers recent literature on optimal monetary policy in simple open-economy models. The presence of pricing to market, incomplete financial markets, and differences in preferences among households (in different countries) introduces some fundamental differences between closed- and...

We propose a formal re-definition of the concept market failure based on the idea of the imperfect state. In the Neo-classical taxonomy, a decentralized regime of exchange is a market failure if its laissez faire equilibrium solution is welfare-dominated by a technically feasible alternative. If...