YEREVAN, Armenia — The American University of Armenia (AUA) Manoogian Simone College of Business and Economics (MSCBE) is pleased to announce the publication of a research article by Dr. Narek Ohanyan, assistant professor at MSCBE, in the Journal of International Money and Finance, a leading peer-reviewed journal in international economics and finance.
The article, titled “Country Portfolios and Optimal Monetary Policy,” is available online and examines how rising financial globalization and countries’ external asset positions shape the design of optimal monetary policy in small open economies.
In the study, Dr. Ohanyan analyzes how foreign asset exposures and exchange rate fluctuations strengthen the exchange rate channel of monetary policy. Using a small open economy model with overlapping generations and foreign asset holdings, the paper demonstrates that strict price stability is not optimal in financially integrated economies. Instead, the welfare-maximizing policy induces an optimal co-movement between domestic and foreign inflation, providing insurance against external shocks.
A key contribution of the article is the identification of a novel intergenerational insurance mechanism, through which monetary policy affects real asset returns and redistributes wealth across generations. The findings demonstrate that, depending on country openness and fiscal policy conduct, optimal monetary policy may imply either positive or negative co-movements between domestic and foreign inflation. In all cases, however, the proposed policy framework delivers higher welfare than conventional inflation targeting or a fixed exchange rate regime.
The research further highlights that optimal monetary policy can reduce government borrowing costs by increasing demand for domestic assets, leading to lower long-run public debt and alleviating the tax burden on households. By balancing portfolio returns and fiscal effects, the paper offers a comprehensive framework for understanding monetary policy trade-offs in economies exposed to global financial shocks.
By combining exact analytical solutions with a non-linear modeling approach, the study advances the literature on optimal monetary and exchange rate policy, country portfolios, and overlapping generations models. The findings offer important insights for policymakers seeking to design monetary policy frameworks that enhance welfare in an increasingly globalized financial environment.
Founded in 1991, the American University of Armenia (AUA) is a private, independent university located in Yerevan, Armenia, affiliated with the University of California, and accredited by the WASC Senior College and University Commission in the United States. AUA provides local and international students with Western-style education through top-quality undergraduate and graduate degree and certificate programs, promotes research and innovation, encourages civic engagement and community service, and fosters democratic values.