MONETARY STABILIZATION POLICY IN AN OPEN ECONOMY

Viable Solutions to an Open Economy Monetary Policy Problem

In Krawczyk and Kim (Macroeconomics, 2009), we studied the problem of setting monetary policy in a closed economy using viability theory. Policies derived from the application of viability theory are ‘good enough’, rather than ‘optimal’. In this paper, we extend the analysis to a small open-economy model where the exchange rate becomes an additional channel for the transmission of monetary poli...

Monetary Policy Trade-o¤s in the Open Economy

Recent work on monetary policy has focused on the trade-o¤ between output volatility and in‡ation volatility. This literature is based largely on models of closed economies. Three conclusions about optimal policy characterize these models. First, the central bank faces an in‡ation-output gap volatility trade-o¤ only in the presence of cost-push shocks. Second, aggregate demand shocks should be ...

Monetary Policy Trade-offs in the Open Economy

Recent work on monetary policy has focused on the trade-off between output volatility and inflation volatility. This literature is based largely on models of closed economies. Three conclusions about optimal policy characterize these models. First, the central bank faces an inflation-output gap volatility trade-off only in the presence of cost-push shocks. Second, aggregate demand shocks should...

Monetary Policy Rules for a Small Open Economy

In this paper the optimal choice of a monetary target is investigated for a small open economy that is subject to foreign monetary policy shocks. In contrast to large parts of the literature, pegging the exchange rate is never the best policy choice for the small open economy in our model. Instead, monetary targeting and, depending on the parameter combination, producer price index targeting co...

Monetary Policy, Currency Unions and Open Economy Macrodynamics