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

Author(s): Pierpaolo Benigno and Gianluca Benigno

Publication Date: April 2001

Keyword(s): Nash Equilibrium, Open Economy, Optimal Monetary Policy and Price Stability

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Benigno, P and Benigno, G. 2001. 'Price Stability as a Nash Equilibrium in Monetary Open-Economy Models'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2757