Degree of openness and inflation targeting policy: model of a small open economy

The purpose of this paper is to deal with the dynamics of a Neo‐Keynesian model applied to a small open economy, in order to show the impact of commercial openness on the choice of the optimal inflation target.

The author uses a neo‐Keynesian model with calibration for Chile.

The results show that there is a relation between the degree of openness and the type of inflation targeting policy.

The originality of the paper is to use a neo‐Keynesian model to deal with a small open economy, which uses inflation targeting as a monetary rule.