This paper emphasizes how the choice of the optimal monetary growth rate in a small open economy under perfect capital mobility depends upon the accommodating policy chosen to maintain the overall budget constraint in the economy. When this occurs through lump sum taxation, the optimal monetary...

In a previous analysis of the West African Monetary Union, Macedo(1985a), size is taken to be a major structural characteristic of a country in the sense that large countries are not affected by disturbances originating in small countries but small countries are affected by large countries'...

The paper examines the robustness of Interest Rate Rules, IRRs, in the context of an imperfectly credible stabilization program, closely following the format of much of the literature in open-economy models, e.g., Calvo and Végh (1993 and 1999). A basic result is that IRRs, like Exchange Rate...

We develop a small open economy macroeconomic model where financial conditions influence aggregate behavior. We use this model to explore the connection between the exchange rate regime and financial distress. We show that fixed exchange rates exacerbate financial crises by tieing the hands of...

This paper develops a variant of the IMF's Global Economic Model (GEM) suitable to analyze macroeconomic dynamics in open economies, and uses it to assess the effectiveness of Taylor rules and Inflation-Forecast-Based (IFB) rules in stabilizing variability in output and inflation. Our findings...

We lay out a small open economy version of the Calvo sticky price model, and show how the equilibrium dynamics can be reduced to a tractable canonical system in domestic inflation and the output gap. We employ this framework to analyze the macroeconomic implications of three alternative monetary...

Using an optimizing model we derive the optimal monetary and exchange rate policy for a small stochastic open economy with imperfect competition and short run price rigidity. The optimal monetary policy has an exact closed-form solution and is obtained using the utility function of the...

This paper develops a new open economy macro model of optimal monetary for a small open economy. Our main result is that in this model, the optimal policy problem for the small open economy is isomorphic to the closed economy case studied in Clarida, Gali, Gertler (1999). In particular, the...

This paper was prepared as a Keynote Address for the ESRC Conference on the Future of Macroeconomics held at the Bank of England Conference Center on April 14, 2000. It uses the empirical framework for formulating and estimating forward looking monetary policy rules developed in Clarida, Gali,...

This paper explores the effects of labor and product market reforms in a New Keynesian, small open economy model with labor market frictions and endogenous producer entry. We show that it takes time for reforms to pay off, typically at least a couple of years. This is partly because the benefits...