Advanced Search
MyIDEAS: Login

Non-Traded Goods and Monetary Policy Trade-Offs in a Small Open Economy

Contents:

Author Info

  • Claudio Soto

Abstract

In this paper I develop a small open economy model that is characterized by existence of two domestic sectors. Together with a home traded goods sector we incorporate a non-traded goods sector. In both sectors prices are sticky, and each one is subject to a specific productivity shock. In this setup the flexible price allocation can not be reached by means of a single monetary policy instrument. Therefore, the central bank faces a trade-off between stabilizing inflation in the Nontraded sector and in the home goods sector. In this context, and when the share of non-traded goods is not too high, a simple Taylor rule outperforms a strict inflation-targeting regime. However, both policy rules are dominated by a rule that moves aggressively the interest rate in response to deviation in core inflation. On the other hand, if the share of non-traded goods is high then the model converges to the closed economy case, and, in absence of an exogenous cost push shock, the optimal policy is to completely stabilize consumer price inflation.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bcentral.cl/estudios/documentos-trabajo/pdf/dtbc214.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 214.

as in new window
Length:
Date of creation: Jun 2003
Date of revision:
Handle: RePEc:chb:bcchwp:214

Contact details of provider:
Postal: Casilla No967, Santiago
Phone: (562) 670 2000
Fax: (562) 698 4847
Web page: http://www.bcentral.cl/
More information through EDIRC

Related research

Keywords:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," NBER Working Papers 7869, National Bureau of Economic Research, Inc.
  2. Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Marcos Antonio Coutinho da Silveira, 2006. "Two-Country New Keynesian DSGE Model: A Small Open Economy as a Limit Case," Discussion Papers 1157, Instituto de Pesquisa Econômica Aplicada - IPEA.
  2. Yuliya Rychalovska, 2008. "The Implications of Structural Asymmetries for Monetary Policy and Welfare in a Small Open Economy: A Linear Quadratic Framework," CERGE-EI Working Papers wp380, The Center for Economic Research and Graduate Education - Economic Institute, Prague.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:chb:bcchwp:214. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.