We develop a small open economy model with capital, sticky prices, and a simple form of financial frictions. We compare welfare levels under three alternative rules: a domestic inflation-based Taylor rule, a CPI inflation-based Taylor rule, and an exchange rate peg. We show that the superiority...

We develop a small open economy model with capital, sticky prices, and a simple form of financial frictions. We compare welfare levels under three alternative rules: a domestic inflation-based Taylor rule, a CPI inflation-based Taylor rule, and an exchange rate peg. We show that the superiority...

We develop a dynamic stochastic general equilibrium model of a small open economy in which both price rigidity and financial friction exist. We compare two cases featuring different interest rate rules. Both cases use the standard Taylor-type interest rate rules, but the second case also...

We apply a Ramsey-type analysis to a standard sticky price, small open economy model, examining the welfare implications of optimal capital controls under fixed exchange rates and optimal monetary policy under flexible exchange rates. We show that capital controls can significantly reduce the...

This paper reexamines optimal debt stabilization policy in a small open economy borrowing from abroad. We incorporate spending reversals as a policy option available to policy-makers for stabilizing public debt. Results show that spending reversals can be welfare-improving and that there exists...

This paper presents a reexamination of debt stabilization policy in a small open economy borrowing from abroad. Spending reversals are incorporated as a policy option available to policy-makers for stabilizing public debt. Results show that a spending reversal rule can be welfare-improving and...

We develop a small open economy, New Keynesian model that incorporates a financial accelerator in combination with liability dollarization. Applying a Ramsey-type analysis, we compare the welfare implications of an optimal monetary policy under flexible exchange rates and an optimal capital...

Concerns that a rapid surge in capital inflow leads to loss of autonomy in macroeconomic policy, and that its reversal has significant negative effects on an economy, have motivated capital controls during the 1990s. Under a fixed exchange rate system without capital-account restrictions, a...

This paper develops a stochastic growth model of a small open economy augmented with banks. We estimate the model by using Bayesian methods and examine how capital controls affect the economy's welfare. The results of our our analysis show that there exits an optimal degree of capital controls...