Limited asset market participation (LAMP) and trade openness are crucial features that characterize all real-world economies. We study equilibrium determinacy and optimal monetary policy in a model of a small open economy with LAMP. With low enough participation in asset markets, conventional...

This paper provides a bird's eye view of the Behavioural New Keynesian literature. We discuss three key empirical regularities in macroeconomic data which are not accounted for by the standard New Keynesian model, namely, excess kurtosis, stochastic volatility, and departures from rational...

This paper studies the dynamic behaviour of a workhorse New Keynesian model in which households and firms can be fully rational or internally rational. First, we derive the model with a fixed proportion (1−n) of agents fully rational and a fixed proportion (1−n) of agents internally...

In the aftermath of the financial crisis, the role of monetary policy and macro-prudential regulation in promoting financial stability is under discussion. The old debate concerning whether monetary policy should respond to credit and asset price bubbles was revived, whereas macro-prudential...

We develop a general mandate framework for delegating monetary policy to an instrument-independent, but goal-dependent central bank. The goal of the mandate consists of: (i) a simple quadratic a loss function that penalizes deviations from target macroeconomic variables; (ii) a form of a...