Monetary policy rules in the open economy: effects on welfare and business cycles
University of Bonn; Centre for Economic Policy Research
Small open economy DSGE model with staggered Calvo price setting, pricing-to-market behavior, incomplete international financial markets (bonds only), physical capital with adjustment costs, and shocks to domestic productivity, world interest r
intermediate goods firms: monopolistic competition with Calvo pricing and pricing-to-market; final goods firms: perfect competition; importers: monopolistic competition with Calvo pricing
Table 1 Col. 1
Optimized Taylor-style rule with sticky prices, PTM, four simultaneous shocks (productivity, world interest rate, UIP, world inflation)
Authors present this as the baseline optimized policy rule result with all four shocks combined