|
| |
| Shigeto Kitano and Kenya Takaku |
| |
| ''Monetary policy, incomplete asset markets, and welfare in a small open economy'' |
| ( 2015, Vol. 35 No.1 ) |
| |
| |
| We develop a small open economy model with capital, sticky prices, and a simple form of financial frictions.
We compare welfare levels under three alternative rules: a domestic inflation-based Taylor rule, a CPI inflation-based Taylor rule, and an exchange rate peg.
We show that the superiority of an exchange rate peg over a domestic inflation-based Taylor rule becomes more pronounced under incomplete financial asset markets and more severe financial frictions. |
| |
| |
| Keywords: small open economy, DSGE; welfare comparison, incomplete financial market, Ramsey policy, exchange rate regime |
JEL: F4 - Macroeconomic Aspects of International Trade and Finance: General
F3 - International Finance: General |
| |
| Manuscript Received : Nov 30 2014 | | Manuscript Accepted : Mar 11 2015 |
|
