Degree of Openness and Inflation Targeting Policy: Model of a Small Open Economy

Jihene Bousrih ()

No 2010.2, Working Papers from International Network for Economic Research - INFER

Abstract: In this paper, we present the dynamics of a Neo-Keynesian model applied to a small open economy in order to study the impact of openness on the choice of the appropriate inflation targeting policy. In the event of exogenous shocks, we can use either a CPI inflation targeting policy or a domestic inflation targeting policy. We conclude that there is a relation between the degree of openness of the economy and the type of infation targeting policy. By considering a domestic shock, when the economy is more open towards outside, we may find that the adoption of CPI inflation targeting is benefical. Whereas in the event of foreign shock, the optimal rule would be the domestic inflation targeting. By considering the criteria of social welfare, we find that for an important degree of openness, the policy of CPI inflation targeting remains the optimal monetary rule.

Keywords: Monetary policy; Domestic Inflation; CPI Inflation; Pass-Through; Degree of Openness (search for similar items in EconPapers)
Pages: 29 pages
Date: 2010
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Degree of openness and inflation targeting policy: model of a small open economy (2012)
Working Paper: Degree of openness and inflation targeting policy: Model of a small open economy (2011)
Working Paper: Degree of openness and inflation targeting policy: model of a small open economy (2011)
Working Paper: Degree of openness and inflation targeting policy: model of a small open economy (2010)
Working Paper: Degree of openess and inflation targeting policy: model of small open economy (2010)
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