Monetary Policy and Exchange Rate Volatility in a Small Open Economy

# Monetary Policy and Exchange Rate Volatility in a Small Open Economy > OpenAlex Metadata Hub · https://openalex.org/W3123711277 ## Bibliographic - **DOI:** 10.3386/w8905 - **Year:** 2002 - **Citations:** 1310 - **Open Access:** Yes (green) - **License:** — - **Source:** https://doi.org/10.3386/w8905 ## Authors - Jordi Galı́ - Tommaso Monacelli ## Abstract We lay out a small open economy version of the Calvo sticky price model, and show how the equilibrium dynamics can be reduced to a tractable canonical system in domestic inflation and the output gap. We employ this framework to analyze the macroeconomic implications of three alternative monetary policy regimes for the small open economy: domestic inflation targeting, CPI targeting and an exchange rate peg. We show that a key difference among these regimes lies in the relative amount of exchange rate volatility that they entail. We also discuss a special case for which domestic inflation targeting constitutes the optimal policy, and where a simple second order approximation to the utility of the representative consumer can be derived and used to evaluate the welfare losses associated with suboptimal regimes. ## Keywords Economics, Monetary policy, Monetary economics, Volatility (finance), Small open economy, Exchange rate, Open economy, Econometrics ## Concepts - Economics - Monetary policy - Monetary economics - Volatility (finance) - Small open economy - Exchange rate - Open economy - Econometrics --- *Metadata only — full text not imported unless Open Access license permits.*

Bài “Monetary Policy and Exchange Rate Volatility in a Small Open Economy” được TradingBase chuyển thành Knowledge Product cho trader — không phải trang đọc abstract OpenAlex. Tóm lược học thuật (đã diễn giải): We lay out a small open economy version of the Calvo sticky price model, and show how the equilibrium dynamics can be reduced to a tractable canonical system in domestic inflation and the output gap. We employ this framework to analyze the macroeconomic implications of three alternative monetary policy regimes for the small open economy: domestic inflation targeting, CPI targeting and an exchange rate peg. We show that a key difference among these regimes lies in the relative amount of exchange rate volatility that they entail. We also discuss a special case for which domestic inflation targeting constitutes the optimal policy, and where a simple second order approximation to the utility of the representative consumer can be derived and used to evaluate the welfare losses associated with suboptimal regimes. Phần Trading Insights bên dưới nối nghiên cứu với Forex, vàng, USD, lãi suất và risk regime — để bạn đưa vào journal và playbook. Metadata DOI/OA chỉ là rail tham chiếu; nội dung chính là summary, takeaways và ứng dụng thị trường do Content Factory sinh.