Optimal Monetary Policy in Closed versus Open Economies: An Integrated Approach

Richard Clarida, Jordi Galí and Mark Gertler

No 8604, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a new open economy macro model of optimal monetary for a small open economy. Our main result is that in this model, the optimal policy problem for the small open economy is isomorphic to the closed economy case studied in Clarida, Gali, Gertler (1999). In particular, the optimal policy can be implemented with a Taylor Rule under which the domestic interest rate adjusts to the equilibrium real interest rate and expected inflation in domestic prices.

JEL-codes: F31 (search for similar items in EconPapers)
Date: 2001-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Published as Clarida, Richard, Jordi Gali and Mark Gertler. "Optimal Monetary Policy In Open Versus Closed Economies," American Economic Review, 2001, v91(2,May), 248-252.

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