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Interest-rate smoothing in a two-sector small open economy

Kam, Timothy


In this paper, interest-rate smoothing under Taylor-type rules is considered for an empirically plausible two-sector small open economy. A simple Taylor-type rule that has sufficient response to output gap, coupled with interest-rate smoothing, can improve welfare relative to our benchmark historical rule. This result is robust to alternative values of the degree of habit persistence and nontraded-goods price stickiness in the model. Alternatively, the interest-rate smoothing result may not...[Show more]

CollectionsANU Research Publications
Date published: 2007
Type: Journal article
Source: Journal of Macroeconomics
DOI: 10.1016/j.jmacro.2005.04.006


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