Monetary policy and exchange rate volatility in a small open economy

• 成果类型: Article
• 署名作者: Galí, J; Monacelli, T
• 署名单位: National Bureau of Economic Research
• 刊物名称: REVIEW OF ECONOMIC STUDIES
• ISSN/ISSBN: 0034-6527
• DOI: 10.1111/j.1467-937X.2005.00349.x
• 发表日期: 2005
• 页码: 707-734
• 关键词: rate dynamics; STABILITY; FRAMEWORK; welfare; models

摘要

We lay out a small open economy version of the Calvo sticky price model, and show how the equilibrium dynamics can be reduced to a simple representation in domestic inflation and the output gap. We use the resulting framework to analyse the macroeconomic implications of three alternative rulebased 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.