This paper investigates the efficiency of monetary and fiscal policy in a two-country general equilibrium model with monopolistic competition and wage stickiness. When monopoly distortions are completely eliminated, we find that stochastic government spending can affect the efficiency of the...

This paper examines optimal monetary policy rules in open economies with vertical production and trade in which we emphasize the role played by reference currency. As evidenced by empirical ï¬ndings, we assume ï¬nal goods prices are sticky, but intermediate goods prices are flexible. We...