Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/316616 
Authors: 
Year of Publication: 
2023
Citation: 
[Journal:] East Asian Economic Review (EAER) [ISSN:] 2508-1667 [Volume:] 27 [Issue:] 2 [Year:] 2023 [Pages:] 115-143
Publisher: 
Korea Institute for International Economic Policy (KIEP), Sejong-si
Abstract: 
In this paper, we address how the monetary authority should react to financial market status and exchange rates movements in a small open economy New Keynesian model with financial frictions due to asymmetric information between savers and borrowers. We show that the small economy with financial frictions is more susceptible to the exogenous shocks under the fixed exchange rate regime than under the flexible exchange regime. The small economy experiences a more prolonged and deeper economic recession under the fixed exchange rate regime than under the flexible exchange rate regime. The monetary policy taking into account external finance premium is better than the interest rate rule without considering the financial market status.
Subjects: 
Financial Frictions
Monetary Policy
Small Open Economy
Welfare Loss
JEL: 
E52
F41
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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