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International heterogeneity of nominal wages and optimal monetary policy

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  • Daisuke Ida
  • Mitsuhiro Okano

Abstract

This paper examines optimal monetary policy in a two‐country model with staggered nominal prices and wages. We show that given home nominal wage stickiness, changes in the degree of foreign nominal wage stickiness substantially impact the worldwide welfare losses and gains from commitment policy. Specifically, the welfare gains from a commitment policy are greatest when nominal wages in both countries are perfectly flexible. However, when nominal wages in the foreign country are stickier, the gains from commitment decrease.

Suggested Citation

  • Daisuke Ida & Mitsuhiro Okano, 2023. "International heterogeneity of nominal wages and optimal monetary policy," International Finance, Wiley Blackwell, vol. 26(2), pages 112-138, August.
    • Handle: RePEc:bla:intfin:v:26:y:2023:i:2:p:112-138
    DOI: 10.1111/infi.12429
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