Financial Frictions and Optimal Monetary Policy in a Small Open Economy
In this paper we set up a small open economy model with financial frictions, following Curdia and Woodford (2010)’s model. Unlike other results in the literature such as Curdia and Woodford (2010), McCulley and Ramin (2008) and Taylor (2008), we find that optimal monetary policy should not respond to changes in domestic interest rate spreads when the source of fluctuations are exogenous financial shocks. A novel result here is that the optimal size of policy responses to changes in the credit spread is large when the disturbance source are shocks to the foreign interest rate. Our results suggest that such a response is welfare enhancing. Classification JEL: E44, E50, E52, E58, F41.
Year of publication: |
2014-11
|
---|---|
Authors: | Bejarano, Jesús A. ; Charry, Luisa F. |
Institutions: | Banco de la Republica de Colombia |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Acelerador Financiero y Ciclos Económicos en Colombia: Un Ejercicio Exploratorio
Galarza, Fernando Tenjo,
-
Financial frictions and optimal monetary policy in a small open economy
Bejarano, Jesús Antonio, (2014)
-
Financial Frictions and Optimal Monetary Policy in a Small Open Economy
Bejarano, Jesús A., (2014)
- More ...