Welfare effects of business cycles and monetary policies in a small open emerging economy

Jolan Mohimont

Journal of Economic Dynamics and Control, 2022, vol. 136, issue C

Abstract: This paper evaluates the welfare cost of business cycles and the effects of monetary policies in a DSGE model tailored to a small open emerging economy. The model generates rich business cycle fluctuations, features labor market idiosyncratic risks and accounts for imperfect financial and capital markets inclusion. In this context, households excluded from financial and capital markets experience larger costs of business cycle fluctuations due to their inability to hedge against labor market idiosyncratic risks. Different degrees of exposure to different types of risks generate divergent preferences regarding the conduct of monetary policy. While a strong response to inflation deviation from target maximizes welfare for included households, excluded households benefit the most from unemployment and wage stabilization policies.

Keywords: Monetary policy; Financial exclusion; Idiosyncratic risks; Labor markets; Emerging economies; SOE; DSGE (search for similar items in EconPapers)
JEL-codes: C51 E3 E32 E52 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Working Paper: Welfare effects of business cycles and monetary policies in a small open emerging economy (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:136:y:2022:i:c:s0165188922000215

DOI: 10.1016/j.jedc.2022.104316

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