IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

On the Quantitative Effects of Unconventional Monetry Policies in Small Open Economies

  • Javier Garcia-Cicco

    (Central Bank of Chile - Universidad Católica Argentina)

This paper quantitatively evaluates the effects of several unconventional monetary policies for small open economies. In particular, a New Keynesian model is extended to include a liquidity premium, deviations from uncovered interest rate parity, and a premium in the term structure of interest rates, allowing the central bank to choose, in addition to its policy rate, the size and composition of its balance sheet. The model is calibrated to the case of Chile. We find that policies affecting the liquidity channel can potentially have large effects, but these depend on expectations about the future policy rate. On the other hand, alternatives working through the term premium have smaller effects, but they are less dependent on the expected path of the reference rate. We also study the possibility of undoing the unconventional policy as a possible exit strategy, with results indicating that this alternative may induce a significant slowdown, particularly if it is anticipated. Finally, we also consider the alternative of driving down the policy rate to its lower bound and maintaining it there for a prolonged period. While this policy can also be greatly expansionary, particularly after contractionary shocks, credibility issues regarding the promise of keeping the rate low for some time can severely undermine these effects.

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:
Download Restriction: no

File URL:
Download Restriction: no

Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 7 (2011)
Issue (Month): 1 (March)
Pages: 53-115

in new window

Handle: RePEc:ijc:ijcjou:y:2011:q:1:a:3
Contact details of provider: Web page:

No references listed on IDEAS
You can help add them by filling out this form.

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

When requesting a correction, please mention this item's handle: RePEc:ijc:ijcjou:y:2011:q:1:a:3. 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: (Bank for International Settlements)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.