01775cas a2200253 a 4500 AALejournalIMF002253 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451842203 1018-5941 BD-DhAAL BD-DhAAL Jung, Yongseung. Optimal Monetary Policy in a Small Open Economy with Habit Formation and Nominal Rigidities / Yongseung Jung, Woon Choi. Washington, D.C. : International Monetary Fund, 2003. 1 online resource (33 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Introducing habit formation into an open economy macroeconomic model with price stickiness, we examine the characteristics of an optimal monetary policy. We find that, first, the optimal policy rule entails interest rate smoothing and responds to the lagged values of the foreign interest rate and domestic technology shocks as well as their current values. Second, habit formation enriches the dynamics of the economy with a persistent, hump-shaped response of consumption to shocks. Finally, when habit formation does matter, the optimal policy rule achieves a greater welfare improvement over alternative policy rules by achieving lower macroeconomic variability. Mode of access: Internet Choi, Woon. IMF Working Papers; Working Paper ; No. 2003/005 Full text available on IMF http://elibrary.imf.org/view/journals/001/2003/005/001.2003.issue-005-en.xml IMF e-Library