Monetary policy, incomplete asset markets, and welfare in a small open economy

Shigeto Kitano and Kenya Takaku ()
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Kenya Takaku: Aichi Shukutoku University

Economics Bulletin, 2015, vol. 35, issue 1, 112-121

Abstract: 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 (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Date: 2015-03-11
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Monetary Policy, Incomplete Asset Markets, and Welfare in a Small Open Economy (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-14-00962

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