Monetary Policy Rules for a Small Open Economy
AbstractIn this paper, the optimal choice of a monetary target is investigated for a small open economy that is subject to foreign monetary policy shocks. In contrast to large parts of the literature, pegging the exchange rate is never the best policy choice for the small open economy in our model. Instead, monetary targeting and, depending on the parameter combination, producer price index targeting come closest to the optimal policy rule in terms of welfare. Generally, the welfare performance of the simple targeting rules under consideration hinge critically on the degree of pass-through in the home economy and in the rest of the world. Copyright 2008 The Author Journal compilation 2008 Banca Monte dei Paschi di Siena SpA.
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Bibliographic InfoArticle provided by Banca Monte dei Paschi di Siena SpA in its journal Economic Notes.
Volume (Year): 37 (2008)
Issue (Month): 1 (02)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0391-5026
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- Bianca De Paoli, 2009.
"Monetary Policy under Alternative Asset Market Structures: The Case of a Small Open Economy,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 41(7), pages 1301-1330, October.
- Bianca De Paoli, 2009. "Monetary Policy Under Alterative Asset Market Structures: the Case of a Small Open Economy," CEP Discussion Papers dp0923, Centre for Economic Performance, LSE.
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