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Journal of Economic Integration 2005 March;20(1) :93-108.
Production Relocation and the Effect of Monetary Policy

Hiroyuki Nishiyama 

Kinki University
Copyright ©2005 Journal of Economic Integration
This paper analyzes the macroeconomic effect of production relocation by using an open economy macroeconomic model. Our analysis shows, paradoxically, that acceleration in production relocation might have an expansive effect on the home economy. We also show that monetary expansion has welfare-enhancing effects even in an economy where production relocation exists. However, advancing production relocation amplifies the effect of monetary policy on the exchange rate. On the other hand, it reduces the effect on the relative home income by advancing production relocation.

JEL Classification: F23, F41, F42

Keywords: Monetary policy | Production relocation | Hollowing out | Beggar-thy-neighbor
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