Özhan, Galip Kemal2016-01-082016-01-082009http://hdl.handle.net/11693/14931Ankara : The Department of Economics, Bilkent University, 2009.Thesis (Master's) -- Bilkent University, 2009.Includes bibliographical references leaves 25-26.This master’s thesis compares outcomes of alternative loss functions to optimal monetary policy in small open economies as the degree of openness increases. The small open economy model that is laid out by Gali and Monacelli (2005) is taken as the baseline framework. Based on a second order Taylor approximation to the utility function, the optimal monetary policy is derived. Then, using the optimal policy as a benchmark, four alternative loss functions are evaluated. Among others, minimizing the variance of domestic inflation achieves the minimum loss and is equivalent to optimal policy. Minimization of CPI inflation variance gives higher losses compared to minimization of domestic inflation variance. Lastly, attributing positive weight to dampening exchange rate fluctuations increases welfare losses.ix, 39 leaves, graphsEnglishinfo:eu-repo/semantics/openAccessLoss functionsmall open economywelfare evaluationoptimal monetary policyHB141 .O94 2009Economics--Mathematical models.States, Small--Economic conditions--Mathematical models.Economic policy--Mathematical models.Monetary policy--Mathematical models.Inflantion (Finance)Thesis