By incorporating the factor of firms' asymmetric price setting behavior into the two-country model with vertical production and trade, we analyze how one country's monetary policy affects the welfare of both countries. We show that an expansionary monetary policy has (i) a beggar-thyself effect...

After the 1990s, many Japanese enterprises shifted their production locations abroad. The principal reason behind their international relocation was the rapid emergence of developing countries producing goods at low costs (wages and the price of nontradable goods), which was accompanied by...