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Title: Alternative targets in optimal monetary policy rules in an open economy
Authors: Chen, Qin
Dai, Chenyuan
Xia, Bingxing
Keywords: DRNTU::Social sciences::Economic theory::International trade
Issue Date: 2010
Abstract: This report examines the optimal monetary policy rules in a two-country DSGE model with real and nominal rigidities. The model is solved by simulation in discrete time and the optimal rule is selected as the one giving highest utility. We find that (1) targeting wage inflation always delivers welfare improvements; (2) targeting exchange rate brings non-decreasing welfare; (3) with interest rate smoothing, monetary authority should give equal weight to inflation targeting and wage inflation targeting. Also, the two-country DSGE model shows a good forecast power after technological shocks and transaction cost shocks.
Rights: Nanyang Technological University
Fulltext Permission: restricted
Fulltext Availability: With Fulltext
Appears in Collections:HSS Student Reports (FYP/IA/PA/PI)

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