Inflation in open economies with complete markets

  title={Inflation in open economies with complete markets},
  author={Marco Celentani and J. Ignacio Conde-Ruiz and Klaus Desmet},
This paper uses an overlapping generations model to analyze monetary policy in a two-country model with asymmetric shocks. Agents insure against risk through the exchange of a complete set of real securities. Each central bank is able to commit to the contingent monetary policy rule that maximizes domestic welfare. In an attempt to improve their country’s terms of trade of securities, central banks choose to commit to costly inflation in favorable states of nature. In equilibrium the effects on… CONTINUE READING

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