Monetary Policy Analysis in a Small Open Economy

The last decade has witnessed a revival of academic interest in monetary policy analysis, stimulated by revolutionary developments in theoretical and empirical macroeconomics. This book consists of four papers, the unifying theme of which is the development and evaluation of quantitative tools for purposes of monetary policy analysis and inflation targeting in a small open economy. These tools consist of alternative macroeconometric models of small open economies which either provide a quantitative description of the monetary transmission mechanism, or yield a mutually consistent set of indicators of inflationary pressure, or both. These macroeconometric models vary considerably with regards to theoretical structure, and yield empirically adequate predictions at all frequencies, as opposed to only cyclical frequencies. The models are estimated with novel Bayesian procedures which fully exploit the information content of the levels of observed endogenous variables, while emphasizing their predictions at cyclical frequencies, and deemphasizing them at trend frequencies. This book should be of interest to students and practitioners of monetary policy.

Francis Vitek is a recent PhD graduate in economics from the University of British Columbia. He has held economist positions at the Bank of Canada and the Bank of England. He currently practices as an economist at the International Monetary Fund.