The forward-looking model: the open economy

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Chapter 11 in Optimal Monetary Policy under Uncertainty, Second Edition, 2019, pp 229-269 from Edward Elgar Publishing

Abstract: Chapter 11 begins by extending the canonical closed-economy New Keynesian model to an open economy setting. This model serves as a framework within which we examine whether there are any signiï¬ cant differences in the conduct of monetary policy in a small open economy compared to a closed economy. The organization of the first part of this chapter is in parts similar to that of Chapter 9 and analyzes the design of optimal policy as well as instrument rules. A more elaborate forward-looking model with micro-founded underpinnings features in the remaining sections. The emphasis in the latter part of this chapter is on evaluating the performance of flexible inflation targeting strategies in a small open economy. We examine CPI, domestic, and real-exchange-rate-adjusted (REX) inflation targeting strategies under optimal monetary policy and variants of Taylor rules.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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