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Delegating Optimal Monetary Policy Inertia in a Small-Open Economy

Daisuke Ida and Mitsuhiro Okano

The B.E. Journal of Macroeconomics, 2021, vol. 21, issue 2, 473-507

Abstract: This paper explores the delegation of several targeting regimes in a small open new Keynesian (NK) model and examines how central banks overcome stabilization bias in a small open NK model. Results indicate that both speed limit and real exchange rate targeting can carry the isomorphic properties of optimal monetary policy over to the closed economy. In addition, neither nominal income growth targeting nor CPI inflation targeting replicates a commitment policy. These findings provide new implications for optimal monetary policy in an open economy.

Keywords: optimal monetary policy; targeting regime; commitment; discretion (search for similar items in EconPapers)
JEL-codes: E52 E58 F41 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1515/bejm-2020-0181

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