Does that mean we are in a hopeless situation, and that we can do nothing to stabilise the economies of small open economies? I do not think so. However, the search for practical advice, advice that a policy maker can actually put into practice and measure its impact, takes us beyond conventional economics.
To begin with, the policy objective of choice should be economic stabilisation, not inflation control. Policy makers need to choose as target a variable over which they can have some control. We cannot target inflation at 5 percent if 80 percent of that inflation is imported from abroad, and import prices rise 10 percent.