Monetary Policy Under Alterative Asset Market Structures: the Case of a Small Open Economy

Bianca De Paoli ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: Can the structure of asset markets change the way monetary policy should be conducted?Following a linear-quadratic approach, the present paper addresses this question in a NewKeynesian small open economy framework. Our results reveal that the configuration of assetmarkets significantly affects optimal monetary policy and the performance of standard policyrules. In particular, when comparing complete and incomplete markets, the ranking of policyrules is entirely reversed, and so are the policy prescriptions regarding the optimal level ofexchange rate volatility.

Keywords: Welfare; Optimal Monetary Policy; Asset Markets; Small Open Economy (search for similar items in EconPapers)
JEL-codes: F41 G15 E52 E61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
Date: 2009-04
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Journal Article: Monetary Policy under Alternative Asset Market Structures: The Case of a Small Open Economy (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:cep:cepdps:dp0923

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