We extend Krawczyk and Kim (Macroecon Dyn 13(1):46–80, <CitationRef CitationID="CR19">1999</CitationRef>) and apply a viability approach to a small-open economy where the exchange rate works as an additional monetary policy transmission channel. A continuous-time version of the model presented in Batini and Haldane (In: Monetary policy...</citationref>

Viability theory is the study of dynamical systems that asks what set of initial conditions will generate evolutions which obey the laws of motion of a system and some state constraints, for the length of the evo- lution. We apply viability theory to Judd’s (JPE, 1987) dynamic tax model to...