GUNJI Hiroshi   Faculty of Economics Department of Modern Economics   Professor

■ Title   Optimal Monetary Policy in an Estimated Local Currency Pricing Model

■ Outline   We analyze fluctuations in inflation and the nominal exchange rate under optimal monetary policy with local currency pricing by developing two-country DSGE local currency pricing and producer currency pricing models. We estimate our models using Bayesian techniques with Japanese and US data, and calculate impulse response functions. Our estimation results show that local currency pricing is strongly supported against producer currency pricing. From the estimated parameters, we show that completely stabilizing consumer price index inflation is optimal from the viewpoint of minimizing welfare costs and that completely stabilizing consumer price index inflation is consistent with completely stabilizing the nominal exchange rate.   Okano, Eiji, Masataka Eguchi, Hiroshi Gunji, and Tomomi Miyazaki   Collaboration   Advances in Econometrics   Emerald   28,pp.37-77   2012/11

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