Macroeconomic stabilization and monetary policy in small open economies

Abstract

In this paper I analyze the role of monetary policy in nominal stabilization in small open economies. In particular, I focus on studying the underlying forces that explained the nominal stabilization several emerging countries exhibited in the second half of the 1990s and the early 2000s. In order to do so, I first estimate several empirical models using both rolling sample windows and also allowing for time-varying parameters. Secondly, I interpret the empirical findings estimating a New Keynesian DSGE model with drifting coe cients and stochastic volatilities.