Identifies three objectives a central bank in a small open economy may address with monetary policies : to improve a weak or deteriorating balance of payments current account, to reverse excess money creation through central bank lending to government and to contain too rapid a build up of net foreign assets by the private sector. Looks at the instruments available to the central bank to achieve its objectives. Concludes that the only objective that may be pursued with monetary policy in a small open economy is to avoid or reverse short-term capital outflow other than one which is precipitated by exchange rate uncertainty or speculative attack on the domestic currency.

3/7/00 M2LMGR