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Competitive depreciation and the role of distorting taxes in an interdependent economy

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  • Takamatsu, Satoko

Abstract

This paper investigates the manners in which international cooperation in monetary policies affects the rate of inflation in a two-country sticky-price model. Within reasonable parameter values, international monetary coordination increases the steady-state inflation for given tax policies. When the tax regime is endogenously chosen, however, self-oriented monetary policies can engage in competitive depreciation and induce a higher average inflation than the first best inflation rate.

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  • Takamatsu, Satoko, 2013. "Competitive depreciation and the role of distorting taxes in an interdependent economy," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 462-477.
    • Handle: RePEc:eee:jimfin:v:32:y:2013:i:c:p:462-477
    DOI: 10.1016/j.jimonfin.2012.05.022
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    More about this item

    Keywords

    Competitive depreciation; Inflation; Welfare spillover; Monetary policy; International cooperation;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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