This paper studies how the nature of shocks affects the optimal choice of monetary policy instruments in a small open economy. Three classic rules, fixed exchange rates, monetary targeting, and inflation targeting are studied and ranked by comparing with the optimal monetary policy under...

This paper, in the spirit of Poole [Poole, William, 1970. The Optimal Choice of Monetary Policy Instruments in a Simple Macro Model. Quarterly Journal of Economics, 84, 192-216.], studies how differently monetary and fiscal shocks influence the appropriate choice of the monetary policy regime....

The authors study a temporary exchange-rate based stabilization plan in which agents face a sudden stop of capital inflows. The model generates a rising path of real interest rates in advance of the exchange rate collapse. This generates a time-dependent non-monotonic path of required premium on...

This paper evaluates quantitatively the effect of real money balances in a New Keynesian framework. Money in our model facilitates transactions and is introduced through a transactions cost technology. This technology acts like a distortionary consumption tax which varies endogenously with the...

There have been large changes in the velocity of money which could be a potential source of inflation variability. This article investigates how the velocity of money affects inflation dynamics by estimating the Phillips curve derived from a New Keynesian model in which money is introduced via...

By allowing for imperfectly informed markets and the role of private information, we offer new insights about observed deviations of portfolio concentrations in domestic relative to foreign risky assets, or home bias, from what standard finance models predict. Our model ascribes the bias to...

By allowing for imperfectly informed markets and the role of private information, we offer newinsights about observed deviations of portfolio concentrations in domestic relative to foreignrisky assets, or “home bias”, from what standard finance models predict. Our model ascribesthe...

Considerable attention has been devoted in the financial literature to excessive portfolio concentrations in domestic risky assets relative to those predicted by standard finance models – generally identified as “home bias” – across international markets. The innovation we offer is...