01996cas a2200253 a 4500 AALejournalIMF009475 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451867817 1018-5941 BD-DhAAL BD-DhAAL Medina Guzman, Juan Pablo. Optimal Monetary Policy in a Small Open Economy Under Segmented Asset Markets and Sticky Prices / Juan Pablo Medina Guzman, Ruy Lama. Washington, D.C. : International Monetary Fund, 2007. 1 online resource (55 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 This paper studies optimal monetary policy in a two-sector small open economy model under segmented asset markets and sticky prices. We solve the Ramsey problem under full commitment, and characterize the optimal monetary policy in a calibrated version of the model. The findings of the paper are threefold. First, the Ramsey solution mimics the allocations under flexible prices. Second, under the optimal policy the volatility of non-tradable inflation is close to zero. Third, stabilizing nontradable inflation is optimal regardless of the financial structure of the small open economy. Even for a moderate degree of price stickiness, implementing a monetary policy that mitigates asset market segmentation is highly distortionary. This last result suggests that policymakers should resort to other policy instruments in order to correct financial imperfections. Mode of access: Internet Lama, Ruy. IMF Working Papers; Working Paper ; No. 2007/217 Full text available on IMF http://elibrary.imf.org/view/journals/001/2007/217/001.2007.issue-217-en.xml IMF e-Library