Robust monetary policies in small open economies

Abhijit Sen Gupta

Oxford Economic Papers, 2010, vol. 62, issue 2, 350-373

Abstract: Recent research on model uncertainty has focused mainly on closed economies. Levin and Williams confirm the existence of robust rules across competing closed economy models. In this paper, we evaluate three small open economy models exhibiting different degrees of inflation and output gap persistence. We find that the above result does not carry over to the open economy, primarily due to the mutually exclusive degree of interest rate smoothing that yields stability in the three models. We also confirm the existence of robust rules across the closed economy versions of these models. Finally, a first difference rule, though yields dynamic stability across the open economy models, continues to perform poorly in at least one of the models. Thus, the cost of choosing the wrong model is extremely high in open economies compared to closed economies, and policymakers must invest more resources to know the true structure of these economies. Copyright 2010 Oxford University Press 2009 All rights reserved, Oxford University Press.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/oep/gpp018 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:oxecpp:v:62:y:2010:i:2:p:350-373

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Oxford Economic Papers is currently edited by James Forder and Francis J. Teal

More articles in Oxford Economic Papers from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().