In this paper the optimal choice of a monetary target is investigated for a small open economy that is subject to foreign monetary policy shocks. In contrast to large parts of the literature, pegging the exchange rate is never the best policy choice for the small open economy in our model. Instead, monetary targeting and, depending on the parameter combination, producer price index targeting co...

In many countries, the monetary policy instrument sometimes remains unchanged for a long period and shows infrequent responses to exogenous shocks. The purpose of this paper is to provide a new explanation on why the central bank’s policy instrument remains unchanged. In the following analysis, we explore how uncertainty on the private agents’ expectations affects robust optimal monetary policy...

Financial Globalization and Monetary Policy* The process of financial globalization has significantly altered the environment in which national monetary policy authorities operate. What implications does this have for the design of monetary policy? The question can be properly addressed only in the context of a model where monetary policy interacts with financial market efficiency. This paper i...

In a stylized Neo-Keynesian model with Calvo-type price and wage stickiness, this paper evaluates the usefulness of delegating price level and nominal wage targets to a discretionary central bank when the monetary policy objectives are summarized by a utility-based loss function. Despite its ability to engender policy inertia, price level targeting is often dominated by inflation targeting when...

the purpose of this paper is to examine the effects of monetary, fiscal and oil revenue shocks on macroeconomic variables in the framework of rule and discretionary monetary policy. to end this, we use a new keynesian dynamic stochastic general equilibrium (dsge) model. given the dominant role of oil in the country, we consider the role of oil shock in the model through different channels. the ...

This paper examines monetary and fiscal policy through the estimation of a New-Keynesian dynamic general equilibrium model for Iran’s economy. In this New-Keynesian dynamic general equilibrium model, the consumers encounter the liquidity constraint and the firms face sticky prices, while they are changing them. In the model presented, a role is considered for both government spending and taxati...

A simple model of monetary/labor search is constructed to study Keynesian indeterminacy and optimal policy. In the model, economic agents have trouble splitting the surplus from exchange appropriately, and we consider monetary and fiscal policies that correct this Keynesian inefficiency. A Taylor rule does not imply determinacy, nor does it support an efficient outcome. Optimal policies yield a...