| Popis: |
This paper presents a framework to analyze the interplay between
nancial frictions at the household and
rm level, liability dollarization and monetary policy in a small open economy subject to productivity and capital inow shocks. Optimized monetary policy rules are calculated under several speci
cations (ination targeting, exchange rate targeting,
xed exchange rate, credit growth targeting) and for two central banks objectives (macreconomic stability and macroeconomic plus
nancial stability). I
nd that,
rst, adding
nancial stability to the central banks objectives results in more inertial monetary policy rules. Second, the optimized Taylor rules under the
nancial stability objective achieve a lower volatility of ination and of credit growth at the same time. However, this comes at the expense of a higher standard deviation of produc- tion. Third, when
nancial stability is included among the central banks objectives, engaging in exchange rate smoothing delivers the smallest value of the central banks loss function, mainly arising through a much reduced volatility of the credit aggregate. In the considered economy, credit growth targeting is suboptimal because of the e¤ect of stronger interest rate increase on currency uctuations, which reinforce the
nancial accelerator. Finally, for the considered shocks, the extent of co-movement of
nancial variables pertaining to entrepreneurs and homeowners crucially depends on the degree of exchange rate exibility. |
