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Monetary Policy Under Alterative Asset Market Structures: the Case of a Small Open Economy

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  • Bianca De Paoli

Abstract

Can the structure of asset markets change the way monetary policy should be conducted? Following a linear-quadratic approach, the present paper addresses this question in a New Keynesian small open economy framework. Our results reveal that the configuration of asset markets significantly affects optimal monetary policy and the performance of standard policy rules. In particular, when comparing complete and incomplete markets, the ranking of policy rules is entirely reversed, and so are the policy prescriptions regarding the optimal level of exchange rate volatility.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0923.

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Date of creation: Apr 2009
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Handle: RePEc:cep:cepdps:dp0923

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: Welfare; Optimal Monetary Policy; Asset Markets; Small Open Economy;

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Citations

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Cited by:
  1. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2010. "Optimal monetary policy in open economies," Economics Working Papers ECO2010/35, European University Institute.
  2. Jonathan Hoddenbagh & Mikhail Dmitriev, 2013. "The Optimal Design of a Fiscal Union," 2013 Papers pho497, Job Market Papers.
  3. Yongseung Jung, 2010. "Asset Market Structures and Monetary Policy in a Small Open Economy," Working Papers id:3104, eSocialSciences.
  4. Ozge Senay & Alan Sutherland, 2010. "The Timing of Asset Trade and Optimal Policy in Dynamic Open Economies," CDMA Working Paper Series 201006, Centre for Dynamic Macroeconomic Analysis.
  5. Agnès Bénassy-Quéré & Véronique Salins, 2010. "A Case for Intermediate Exchange-Rate Regimes," Working Papers 2010-14, CEPII research center.
  6. Barbara Annicchiarico & Alessandro Piergallini, 2010. "Country-Specific Risk Premium, Taylor Rules, and Exchange Rates," CEIS Research Paper 174, Tor Vergata University, CEIS, revised 08 Nov 2010.
  7. Giovanni Lombardo & Federico Ravenna, 2014. "Openness and Optimal Monetary Policy," Cahiers de recherche 1410, CIRPEE.
  8. Dmitriev, Mikhail & Hoddenbagh, Jonathan, 2012. "Price Stability In Small Open Economies," MPRA Paper 46132, University Library of Munich, Germany, revised Feb 2013.
  9. Yongseung Jung, 2010. "Asset Market Structures and Monetary Policy in a Small Open Economy," Macroeconomics Working Papers 22811, East Asian Bureau of Economic Research.

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