Is Monetary Policy in an Open Economy Fundamentally Different?
AbstractOpenness per se requires optimal monetary policy to deviate from the canonical closed-economy principle of domestic price stability, even if domestic prices are the only ones to be sticky. I review this argument using a simple partial equilibrium analysis in an economy that trades in final consumption goods. I then extend the standard open economy New Keynesian model to include imported inputs of production. Production openness strengthens even further the incentive for the policymaker to deviate from strict domestic price stability. With both consumption and production openness variations in the world price of food and in the world price of imported oil act as exogenous cost-push factors.
Download InfoIf 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.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9087.
Date of creation: Aug 2012
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-08-23 (All new papers)
- NEP-MAC-2012-08-23 (Macroeconomics)
- NEP-MON-2012-08-23 (Monetary Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Dmitriev, Mikhail & Hoddenbagh, Jonathan, 2012.
"Price Stability In Small Open Economies,"
46132, University Library of Munich, Germany, revised Feb 2013.
- Luis Cat�o & Roberto Chang, 2013.
"Monetary Rules for Commodity Traders,"
IMF Economic Review,
Palgrave Macmillan, vol. 61(1), pages 52-91, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.