Abstract
Abstract This study is carried out in a small open economy New Keynesian DSGE model proposed by Monacelli (2005) . As a result, firstly the exchange rate pass-through into import price and inflation is 0.69% and 0.49% respectively in short run. Secondly, the exchange rate acts as a shock absorber for domestic productivity and foreign demand shock. Thirdly , in case of incomplete pass-through the central bank of Mongolia is required to adjust the nominal interest rate more under the productivity shock. Therefore, considering incomplete pass-through is significant to improve the effectiveness of the monetary policy for the central bank of Mongolia.
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