scholarly journals Financial frictions and optimal monetary policy in a small open economy

2014 ◽  
Author(s):  
Jesús Antonio Bejarano-Rojas ◽  
Luisa F. Charry
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Financial Frictions ◽  
Small Open Economy ◽  
Optimal Monetary Policy

Optimal monetary policy in a small open economy: The case of Korea

2007 ◽  
Vol 18 (1) ◽  
pp. 125-143 ◽  
Author(s):  
Jaesik Chung ◽  
Yongseung Jung ◽  
Doo Yong Yang
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Small Open Economy ◽  
Optimal Monetary Policy

scholarly journals Should monetary policy lean against the wind in a small-open economy? Revisiting the Tinbergen rule

2021 ◽  
Author(s):  
Rogelio De la Peña
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Monopolistic Competition ◽  
Financial Frictions ◽  
Small Open Economy ◽  
Central Banks ◽  
Welfare Cost ◽  
Policy Regimes ◽  
Policy Objectives ◽  
Single Instrument

It has been debated whether monetary policy should lean against the wind, i.e., if central banks should also respond to the build-up of financial imbalances. I contribute to the debate by showing that targeting the two policy objectives with a single instrument is more costly for a small-open economy than for a closed one. To this end, I develop a small-open economy DSGE model with the Bernanke-Gertler-Gilchrist financial accelerator that features financial frictions and monopolistic competition in goods markets. I then estimate this model for Mexico to explore the policy regimes yielding the lowest welfare cost. My main finding is that the Tinbergen rule is alive and well. In addition, my model is useful to gauge macroprudential measures effectiveness when discriminating against foreign liabilities.

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