Küçük açık ekonomilerde refah değerlendirmesine göre alternatif kayıp fonksiyonları

This master's thesis compares outcomes of alternative loss functions to optimalmonetary policy in small open economies as the degree of opennessincreases. The small open economy model that is laid out by Gali and Monacelli(2005) is taken as the baseline framework. Based on a second orderTaylor approximation to the utility function, the optimal monetary policy isderived. Then, using the optimal policy as a benchmark, four alternative lossfunctions are evaluated. Among others, minimizing the variance of domesticinflation achieves the minimum loss and is equivalent to optimal policy.Minimization of CPI inflation variance gives higher losses compared to minimizationof domestic inflation variance. Lastly, attributing positive weight todampening exchange rate fluctuations increases welfare losses.