search query: @indexterm OPEN ECONOMY / total: 204
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| Author: | Gupta, A.S. |
| Title: | Robust monetary policies in small open economies |
| Journal: | Oxford Economic Papers
2010 : APR, VOL. 62:2, p. 350-373 |
| Index terms: | monetary policy open economy models |
| Language: | eng |
| Abstract: | Levin and Williams confirm the existence of robust rules (hereafter as: r-rls.) across competing closed economy (as: cl-econ.) models. This paper evaluates three small open economy (as: o-econ.) models exhibiting different degrees of inflation and output gap persistence. It is found that the above result does not carry over to the o-econ., primarily because of the mutually exclusive degree of interest rate smoothing yielding stability. The existence of r-rls. across the cl-econ. versions of these models is confirmed, as well. Finally, a first difference rule, though yielding dynamic stability across the o-econ., continues to perform poorly in at least one of the models. Hence, the cost of choosing the wrong model is extremely high in open economies compared to closed ones. Policymakers have to invest more resources to know the true structure of these economies. |
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