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Monetary Policy Transmission in Small Open Economies

703 words 3 min read 3 views Added 21 Aug 2026

In a small open economy the exchange-rate channel often dominates the interest-rate channel, inverting the textbook ordering of monetary transmission. This paper examines that inversion using evidence from inflation-targeting economies and considers what it implies for central banks whose mandates were written with a closed-economy model in mind.

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What's inside

1 Abstract
2 The Textbook Transmission Mechanism
3 Why Openness Reorders the Channels
4 Evidence from Inflation Targeters
5 Capital Flows and Policy Independence
6 Mandate Design Under Openness
7 Conclusion
8 References

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