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Federal Reserve Bank of Dallas
Globalization Institute Working Papers
Pricing-to-market and optimal interest rate policy
Dudley Cooke
Abstract

I study optimal interest rate policy in a small open economy with consumer search in the product market. When there are search frictions, firms price-to-market, with implications for the design of monetary policy. Country-specific shocks generate deviations from the law of one price for traded goods which monetary policy acts to stabilize by influencing firm markups. However, stabilizing law of one price deviations results in greater fluctuations in output.


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Dudley Cooke, Pricing-to-market and optimal interest rate policy, Federal Reserve Bank of Dallas, Globalization Institute Working Papers 187, 01 Aug 2014.
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Keywords: interest rates; monetary policy; price
DOI: 10.24149/gwp187
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