This paper characterizes, empirically, the conduct of monetary policy in a small open economy. In particular, using as a case study the Chilean inflation targeting experience, we assess the role of the exchange rate in the determination of the interest rate. We conclude that Chile has adopted...

This study sets out to develop a simplified risk premium model to explain output volatility within the economies of Asia in the immediate aftermath of the Asian financial crisis. Firms are allowed to borrow from both domestic and foreign banks, with the firms� debts being loosely...

The data across time and countries suggest that moderate-to-high inflation and inflation volatility are highly correlated. This paper examines the effect of trend inflation on the ability of the monetary authority to ensure a determinate equilibrium and macroeconomic stability in a sticky-price...

The effects of inflation on real wage dispersion and welfare are studied in a cash-in-advance economy with a Walrasian goods market but a labor market with search friction. In the labor market, firms post wages and both employed and unemployed workers search among the posted wages. In...

This paper studies a simple monetary growth model with debt and deficits to investigate the effects of various polices on output and inflation when the central bank is `tough.' In sharp contrast to the vast literature which implicitly or explicitly assumes fiscal dominance regime, in which the...

Evidence suggests that developing countries are more concerned with stabilizing the nominal exchange rate than developed countries. Some papers show not only that nominal exchange rates are less volatile, but also that international reserves and domestic interest rates are significantly more...

Modern theories of government finance stress the importance of an economy’s fiscal deficits in determining the course of monetary policy. Modern growth theory stresses the role of monetary factors in economic growth. This paper explores how these two are interrelated, using a simple AK...

Inflation can “grease†the wheels of the labor market by relaxing downward wage rigidity but it can also increase uncertainty and have a negative “sand†effect. This paper studies the grease effect of inflation by looking at whether the interaction between inflation and labor...

The present paper is related to the recent discussion about the efficiency of the Reserve Federal Bank on investment decisions. Our aim is not to propose an optimal policy rule but rather to appreciate and to understand the link between the monetary interventions of the FED and capital...

This paper uses a two-country, monetary general equilibrium model with imperfect competition to study the optimal rate of inflation in an open economy. In contrast with the closed economy literature, when policy is set non-cooperatively in the open economy, the optimality of the Friedman rule --...