Current account dynamics and optimal monetary policy in a small-open economy
AbstractThis paper studies a small open economy with two sectors. In a perfect foresight, rational expectation general equilibrium model, with sticky prices in the non-traded goods sector, the current account responses to monetary shocks depend on the elasticity of substitution between consumption and risk aversion, the country's initial net foreign asset position, and the degree of monopolistic competition. The current account reacts quite efficiently to technological shocks in a small open economy. The welfare gain for households from adopting optimal monetary policy in contrast to constant money growth rule is quantitatively small.
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Bibliographic InfoArticle provided by Inderscience Enterprises Ltd in its journal Int. J. of Monetary Economics and Finance.
Volume (Year): 2 (2009)
Issue (Month): 2 ()
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Web page: http://www.inderscience.com/browse/index.php?journalID=218
open economy macroeconomics; current account dynamics; optimal monetary policy; small open economy.;
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- Itai Agur & Maria Demertzis, 2011.
""Leaning Against the Wind" and the Timing of Monetary Pollicy,"
DNB Working Papers
303, Netherlands Central Bank, Research Department.
- Agur, Itai & Demertzis, Maria, 2013. "“Leaning against the wind” and the timing of monetary policy," Journal of International Money and Finance, Elsevier, vol. 35(C), pages 179-194.
- Itai Agur & Maria Demertzis, 2013. ""Leaning Against the Wind" and the Timing of Monetary Policy," IMF Working Papers 13/86, International Monetary Fund.
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