We study optimal monetary policy in two prototype economies with sticky prices and credit market frictions. In the first economy, credit frictions apply to the financing of the capital stock, generate acceleration in response to shocks and the quot;financial markupquot; (i.e., the premium on...

We analyze optimal monetary policy in a two-country model with price stickiness and imperfect competition. In this context, a terms of trade externality affects policy interaction between independent monetary authorities. Unlike the existing literature, we remain consistent to a public finance...