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.
Cavallari, L. (2004). Optimal monetary rules and internationalized production. INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, 9, 175-186 [10.1002/ijfe.240].