Monetary policy and uncertainty in an empirical small open-economy model
Alejandro Justiniano and
Bruce Preston ()
Journal of Applied Econometrics, 2010, vol. 25, issue 1, 93-128
This paper explores optimal policy design in an estimated model of three small open economies: Australia, Canada and New Zealand. Within a class of generalized Taylor rules, we show that to stabilize a weighted objective of output consumer price inflation and nominal interest variation optimal policy does not respond to the nominal exchange. This is despite the presence of local currency pricing and due, in large part, to observed exchange rate disconnect in these economies. Optimal policies that account for the uncertainty of model estimates, as captured by the parameters' posterior distribution, similarly exhibit a lack of exchange rate response. In contrast to Brainard (1967), the presence of parameter uncertainty can lead to more or less aggressive policy responses, depending on the model at hand. Copyright © 2010 John Wiley & Sons, Ltd.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (148) Track citations by RSS feed
Downloads: (external link)
http://hdl.handle.net/10.1002/jae.1153 Link to full text; subscription required (text/html)
http://qed.econ.queensu.ca:80/jae/2010-v25.1/ Supporting data files and programs (text/html)
Working Paper: Monetary policy and uncertainty in an empirical small open economy model (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:jae:japmet:v:25:y:2010:i:1:p:93-128
Ordering information: This journal article can be ordered from
http://www3.intersci ... e.jsp?issn=0883-7252
Access Statistics for this article
Journal of Applied Econometrics is currently edited by M. Hashem Pesaran
More articles in Journal of Applied Econometrics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing ().