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Monetary policy and exchange rate volatility in a small open economy

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dc.contributor.author Galí, Jordi, 1961-
dc.contributor.author Monacelli, Tommaso
dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
dc.date.accessioned 2017-07-26T10:50:22Z
dc.date.available 2017-07-26T10:50:22Z
dc.date.issued 2004-07-01
dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=835
dc.identifier.citation Review of Economic Studies, 72, 707-734, 2005
dc.identifier.uri http://hdl.handle.net/10230/888
dc.description.abstract We lay out a small open economy version of the Calvo sticky price model, and show how the equilibrium dynamics can be reduced to simple representation in domestic inflation and the output gap. We use the resulting framework to analyze the macroeconomic implications of three alternative rule-based policy regimes for the small open economy: domestic inflation and CPI-based Taylor rules, and an exchange rate peg. We show that a key difference among these regimes lies in the relative amount of exchange rate volatility that they entail. We also discuss a special case for which domestic inflation targeting constitutes the optimal policy, and where a simple second order approximation to the utility of the representative consumer can be derived and used to evaluate the welfare losses associated with the suboptimal rules.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries Economics and Business Working Papers Series; 835
dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.title Monetary policy and exchange rate volatility in a small open economy
dc.type info:eu-repo/semantics/workingPaper
dc.date.modified 2017-07-23T02:09:17Z
dc.subject.keyword small open economy
dc.subject.keyword optimal monetary policy
dc.subject.keyword sticky prices
dc.subject.keyword exchange rate peg
dc.subject.keyword exchange rate volatility
dc.subject.keyword Macroeconomics and International Economics
dc.rights.accessRights info:eu-repo/semantics/openAccess


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