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Inflation Targeting In A Small Open Economy
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Book Synopsis Inflation Targeting Lite' in Small Open Economies by : International Monetary Fund
Download or read book Inflation Targeting Lite' in Small Open Economies written by International Monetary Fund and published by International Monetary Fund. This book was released on 2005-09-01 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a new macrofinance model for small open economies, allowing the investigation of Mauritius's experience with 'inflation targeting lite' as described in Stone (2003). It finds that this monetary policy regime has been associated with a general reduction in inflation, principally through a reduction in inflation expectations. The credibility the Bank of Mauritius has established with its 'inflation targeting lite' regime has allowed it to shift from an emphasis on exchange rate targeting towards inflation targeting. By estimating a model in which the yield curve is modeled explicitly we are able to obtain estimates of inflation expectations.
Book Synopsis Inflation Targeting in a Small Open Economy by : Alan Sutherland
Download or read book Inflation Targeting in a Small Open Economy written by Alan Sutherland and published by . This book was released on 2001 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Hybrid Inflation Targeting Regimes by : Jorge Restrepo
Download or read book Hybrid Inflation Targeting Regimes written by Jorge Restrepo and published by International Monetary Fund. This book was released on 2009-10-01 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses a DSGE model to examine whether including the exchange rate explicitly in the central bank's policy reaction function can improve macroeconomic performance. It is found that including an element of exchange rate smoothing in the policy reaction function is helpful both for financially robust advanced economies and for financially vulnerable emerging economies in handling risk premium shocks. As long as the weight placed on exchange rate smoothing is relatively small, the effects on inflation and output volatility in the event of demand and cost-push shocks are minimal. Financially vulnerable emerging economies are especially likely to benefit from some exhange rate smoothing because of the perverse impact of exchange rate movements on activity.
Book Synopsis Monetary Policy and Exchange Rate Volatility in a Small Open Economy by : Jordi Galí
Download or read book Monetary Policy and Exchange Rate Volatility in a Small Open Economy written by Jordi Galí and published by . This book was released on 2002 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: We lay out a small open economy version of the Calvo sticky price model, and show how the equilibrium dynamics can be reduced to a tractable canonical system in domestic inflation and the output gap. We employ this framework to analyze the macroeconomic implications of three alternative monetary policy regimes for the small open economy: domestic inflation targeting, CPI targeting and an exchange rate peg. We show that a key difference among these regimes lies in the relative amount of exchange rate volatility that they entail. We also discuss a special case for which domestic inflation targeting constitutes the optimal policy, and where a simple second order approximation to the utility of the representative consumer can be derived and used to evaluate the welfare losses associated with suboptimal regimes.
Book Synopsis Monetary Policy and Exchange Rate Volatility in a Small Open Economy by : Jonas Böhmer
Download or read book Monetary Policy and Exchange Rate Volatility in a Small Open Economy written by Jonas Böhmer and published by GRIN Verlag. This book was released on 2009-10-02 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2008 in the subject Business economics - Economic Policy, grade: 1,3, University of Bonn (Wirtschaftspolitische Abteilung der Rechts- und Staatswissenschaftlichen Fakultät), course: Geldtheorie- und politik, language: English, abstract: Does inflation reduce welfare? What is worse, a volatile exchange rate or a high inflation rate? And is the central bank able to drive these variables? These questions are the topic of a paper by Jordi Gali and Tommaso Monacelli, published in 2005 and titled “Monetary Policy and Exchange Rate Volatility in a Small Open Economy”. As apparent by the title Gali and Monacelli (G+M) analyze the influence of monetary policy on the volatility of the exchange rate, more precisely the nominal exchange rate and the terms of trade. For this purpose they create a small open economy with sticky prices of Calvo-type. Due to its minor size this economy does not influence the world economy. However, depending on the degree of openness this economy is affected by the rest of the world. Having specified this framework, G+M introduce three different monetary regimes and evaluate the resulting exchange rate volatilities . Using a central bank loss function G+M rank these three rules according to the implied welfare which shows a positive correlation between welfare and exchange rate volatility. Thence G+M prefer Taylor rules over an exchange rate pegging. To get a general idea of Gali and Monacelli`s argumentation this expose will start in chapter 2 with an abbreviated overlook over G+M’s model of a small open economy. In the following chapter there will be the introduction of the three central bank rules, necessary to close the model, as well as an analysis of the underlying welfare levels. Since the welfare evaluation is based on some special assumptions, chapter 4 will give an overview of recent literature which discusses possible extensions as well as their implications for G+M’s ranking of implied welfare. Concluding chapter 5 will summarize G+M’s most important results as well as evaluate if the possible extensions render G+M’s analysis, respectively their results, worthless.
Book Synopsis Exchange Rate Effects and Inflation Targeting in a Small Open Economy by : Reserve Bank of New Zealand
Download or read book Exchange Rate Effects and Inflation Targeting in a Small Open Economy written by Reserve Bank of New Zealand and published by . This book was released on 1999 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Inflation Targeting in a Small Open Economy by : Nargis Bharucha
Download or read book Inflation Targeting in a Small Open Economy written by Nargis Bharucha and published by . This book was released on 1998 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the merits of aggregate inflation targeting compared with non-traded inflation targeting using a model of a small open economy producing traded and non-traded goods. An important innovation of our approach is that we isolate the effects of exchange rate, supply and demand shocks by analysing the conditional variance of macroeconomic variables. We show that monetary policy should be more activist in response to exchange rate shocks for a flexible aggregate inflation target than for a flexible non-traded inflation target. However, in response to demand and supply shocks monetary policy is more activist for a flexible non-traded inflation target. The result is robust to the inclusion of forward-looking expectations, gradual exchange rate pass-through, and discretionary policy. In order to avoid excessive volatility in product and financial markets, it may be preferable to target inflation over a medium-term horizon.
Book Synopsis Inflation Targeting and Exchange Rate Management In Less Developed Countries by : Mr.Marco Airaudo
Download or read book Inflation Targeting and Exchange Rate Management In Less Developed Countries written by Mr.Marco Airaudo and published by International Monetary Fund. This book was released on 2016-03-08 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.
Book Synopsis Price-level Versus Inflation Targeting in a Small Open Economy by : Gabriel Srour
Download or read book Price-level Versus Inflation Targeting in a Small Open Economy written by Gabriel Srour and published by . This book was released on 2001 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Inflation Targeting and Exchange Rate Rules in an Open Economy by : Mr.Eric Parrado
Download or read book Inflation Targeting and Exchange Rate Rules in an Open Economy written by Mr.Eric Parrado and published by INTERNATIONAL MONETARY FUND. This book was released on 2004-02-01 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides a simple dynamic neo-Keynesian model that can be used to analyze the impact of monetary policy that considers inflation targeting in a small open economy. This economy is characterized by imperfect competition and short-run price rigidity. The main findings of the paper are that, depending on what shocks affect the economy, the effects of inflation targeting on output and inflation volatility depend crucially on the exchange rate regime and the inflation index being targeted. First, in the presence of real shocks, flexible exchange rates dominate managed exchange rates, while for nominal shocks the reverse is true. Second, domestically generated inflation targeting is preferable to CPI inflation targeting, because the former is more stabilizing not only in relation to both measures of inflation, but also to the output gap and the real exchange rate. Finally, flexible inflation targeting outperforms strict inflation targeting in terms of welfare.
Book Synopsis Price-level Versus Inflation Targeting in a Small Open Economy by : Bank of Canada
Download or read book Price-level Versus Inflation Targeting in a Small Open Economy written by Bank of Canada and published by . This book was released on 2001 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Optimal Monetary Policy in a Small Open Economy Under Segmented Asset Markets and Sticky Prices by : Ruy Lama
Download or read book Optimal Monetary Policy in a Small Open Economy Under Segmented Asset Markets and Sticky Prices written by Ruy Lama and published by International Monetary Fund. This book was released on 2007-09 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies optimal monetary policy in a two-sector small open economy model under segmented asset markets and sticky prices. We solve the Ramsey problem under full commitment, and characterize the optimal monetary policy in a calibrated version of the model. The findings of the paper are threefold. First, the Ramsey solution mimics the allocations under flexible prices. Second, under the optimal policy the volatility of non-tradable inflation is close to zero. Third, stabilizing nontradable inflation is optimal regardless of the financial structure of the small open economy. Even for a moderate degree of price stickiness, implementing a monetary policy that mitigates asset market segmentation is highly distortionary. This last result suggests that policymakers should resort to other policy instruments in order to correct financial imperfections.
Book Synopsis Monetary and Fiscal Rules in an Emerging Small Open Economy by : Nicoletta Batini
Download or read book Monetary and Fiscal Rules in an Emerging Small Open Economy written by Nicoletta Batini and published by . This book was released on 2009 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a optimal rules-based interpretation of the 'three pillars macroeconomic policy framework': a combination of a freely floating exchange rate, an explicit target for inflation, and a mechanism than ensures a stable government debt-GDP ratio around a specified long run. We show how such monetary-fiscal rules need to be adjusted to accommodate specific features of emerging market economies. The model takes the form of two-blocs, a DSGE emerging small open economy interacting with the rest of the world and features, in particular, financial frictions It is calibrated using Chile and US data. Alongside the optimal Ramsey policy benchmark, we model the three pillars as simple monetary and fiscal rules including and both domestic and CPI inflation targeting interest rate rules alongside a 'Structural Surplus Fiscal Rule' as followed recently in Chile. A comparison with a fixed exchange rate regime is made. We find that domestic inflation targeting is superior to partially or implicitly (through a CPI inflation target) or fully attempting to stabilizing the exchange rate. Financial frictions require fiscal policy to play a bigger role and lead to an increase in the costs associated with simple rules as opposed to the fully optimal policy.
Book Synopsis Optimal and Conditionally Optimal Targeting Rules for Small Open Economies by : Richard Dennis
Download or read book Optimal and Conditionally Optimal Targeting Rules for Small Open Economies written by Richard Dennis and published by . This book was released on 1999 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Inflation Targeting and Capital Openness in the Small Open Economy by : Sanchita Mukherjee
Download or read book Inflation Targeting and Capital Openness in the Small Open Economy written by Sanchita Mukherjee and published by . This book was released on 2011 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Interest Rate Targeting in a Small Open Economy by : Mr.Guillermo Calvo
Download or read book Interest Rate Targeting in a Small Open Economy written by Mr.Guillermo Calvo and published by International Monetary Fund. This book was released on 1990-03-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: An important hurdle in analyzing interest rate targeting is that standard models usually lead to price level or inflation rate indeterminacy. This paper develops a simple framework in which such problems do not arise because the bonds whose interest rate is controlled provide liquidity services. This framework is used to examine interest rate targeting in a small open economy under predetermined exchange rates. A permanent increase in the interest rate has no real effects. In contrast, a temporary increase in the interest rate leads to higher consumption and to a current account deficit that worsens over time.
Book Synopsis Optimal Simple Targeting Rules for Small Open Economies by : Richard Dennis
Download or read book Optimal Simple Targeting Rules for Small Open Economies written by Richard Dennis and published by . This book was released on 2000 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Federal Reserve Bank of San Francisco presents the full text of an article entitled "Optimal Simple Targeting Rules for Small Open Economies," by Richard Dennis. The article discusses optimal policy rules in a stylized small open economy model under a spectrum of targeting regimes. Optimal simple rules are rules that exploit a reduced information set.
