FAIA, ESTER; MONACELLI, TOMMASO - In: Journal of Money, Credit and Banking 40 (2008) 4, pp. 721-750
We analyze optimal monetary policy in a small open economy characterized by home bias in consumption. Peculiar to our framework is the application of a Ramsey-type analysis to a model of the recent open-economy New Keynesian literature. We show that home bias in consumption is a sufficient...