Price Stability as a Nash Equilibrium in Monetary Open-Economy Models

Pierpaolo Benigno and Gianluca Benigno

No 2757, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A two-country dynamic general-equilibrium model with imperfect competition and price stickiness is considered. This work shows the conditions under which price stability can implement the flexible-price allocation as a Nash equilibrium. This is possible if and only if both countries maintain a certain positive degree of monopolistic competition. In such equilibrium, the monetary policymakers have no incentive to surprise price setters ex post.

Keywords: Price stability; Nash equilibrium; Optimal monetary policy; Open economy (search for similar items in EconPapers)
JEL-codes: E52 F41 (search for similar items in EconPapers)
Date: 2001-04
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Citations: View citations in EconPapers (35)

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