Monetary policy and exchange rate volatility in a small open economy
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- dc.contributor.author Galí, Jordi, 1961-ca
- dc.contributor.author Monacelli, Tommasoca
- 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.date.modified 2017-07-23T02:09:17Z
- 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/pdfca
- 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.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.accessRights info:eu-repo/semantics/openAccess
- dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
- 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.title Monetary policy and exchange rate volatility in a small open economyca
- dc.type info:eu-repo/semantics/workingPaper