S-Space College of Social Sciences (사회과학대학) Institute of Economics Research (경제연구소) Seoul Journal of Economics Seoul Journal of Economics vol.18(2) (Summer 2005)
The Performance of Targeting Monetary Policies in a Small Open Economy
- Nam, Kwanghee
- Issue Date
- Seoul Journal of Economics, Vol.18 No.2, pp. 147-172
- This paper examines the performance of targeting monetary policies in a dynamic optimizing model. Towards this end I develop a small open economy version of the New Keynesian model and calibrate it to the recent Korean data. By modeling the central bank as an optimizing agent with explicit weights on different components of the objective function, I explore the consequences of alternative specifications of the central bank's objectives. Policy simulations include variations on inflation targeting, nominal income growth targeting and exchange rate targeting. Simulation results suggest that inflation targeting is preferable to nominal income growth and exchange rate pegging in smoothing out fluctuations in inflation and the output-gap.