Monetary Policy and Uncertainty in an Empirical Small Open Economy Model

  title={Monetary Policy and Uncertainty in an Empirical Small Open Economy Model},
  author={Alejandro Justiniano},
This paper explores optimal policy design in an estimated model of three small open economies: Australia, Canada and New Zealand. Within a class of generalized Taylor rules, we show that to stabilize a weighted objective of output, consumer price in‡ation and nominal interest variation optimal policy does not respond to the nominal exchange. This is despite the presence of local currency pricing and due, in large part, to observed exchange rate disconnect in these economies. Optimal policies… CONTINUE READING
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