Announced Regime Switch: Optimal Policy for Transition Period
CERGE-EI Working Paper Series No. 402
54 Pages Posted: 13 Jan 2010
Date Written: December 1, 2009
The novelty of this work is the presentation of the theoretical framework that allows to model announced change of the monetary regime. I analyze behavior of small open economy that announced to adopt a monetary policy regime with focus on offsetting nominal exchange rate changes in given number of periods. First, I analyze effects for macroeconomic stability of choice of the monetary regime for transition period. For this analysis, I consider representative types of monetary regimes in the announcement change period. I also try to rank the examined regimes in terms of loss functions. Moreover, I try to analyze the evolution of business cycles synchronization over the transition.
Keywords: New Keynesian Models, Small Open Economy, Monetary regime change
JEL Classification: E17, E31, E52, E58, E61, F02, F41
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