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How does an unexpected domestic monetary expansion affect the foreign economy? Does it induce an increase or a decline in foreign production? In the traditional two-country Mundell–Fleming model, monetary policy reveals ‘beggar-thy-neighbour’ effects. Yet, empirical evidence from VARs indicates that US monetary policy has positive international transmission effects on both foreign (non-US G-7) output and aggregate demand. In this paper, I show that a two-country dynamic general equilibrium model with sticky prices can account for these ‘stylized facts’ if we introduce international asymmetries in the price-setting behaviour of firms insofar as home (US) firms set export prices in their own currency only (producer-currency pricing), whereas producers in the rest of the world price their exports to the US in the local currency of the export market (local-currency pricing). Copyright © 2006 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]

This paper explores the implications of international location of production for the optimal design of monetary policy in a framework that allows for price discrimination across international markets. By introducing multinational production in a dynamic open economy, the paper shows that optimal monetary rules do not react to foreign cyclical conditions. The paper further shows that non-cooperative monetary rules cannot restore the flexible price allocation while international monetary cooperation can do so. Copyright © 2004 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]