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Optimal Interest Rate Policy In A Small Open Economy
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Book Synopsis Optimal Interest Rate Policy in a Small Open Economy by : Eric Parrado
Download or read book Optimal Interest Rate Policy in a Small Open Economy written by Eric Parrado and published by . This book was released on 2002 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using an optimizing model we derive the optimal monetary and exchange rate policy for a small stochastic open economy with imperfect competition and short run price rigidity. The optimal monetary policy has an exact closed-form solution and is obtained using the utility function of the representative home agent as welfare criterion. The optimal policy depends on the source of stochastic disturbances affecting the economy, much as in the literature pioneered by Poole (1970). Optimal monetary policy reacts to domestic and foreign disturbances. If the intertemporal elasticity of substitution in consumption is less than one, as is likely to be the case empirically, the optimal exchange rate policy implies a dirty float: interest rate shocks from abroad are met partially by adjusting home interest rates, and partially by allowing the exchange rate to move. This optimal pattern may help rationalize the observed fear of floating.
Book Synopsis Optimal Monetary Policy in a Small Open Economy with Habit Formation and Nominal Rigidities by : Woon Gyu Choi
Download or read book Optimal Monetary Policy in a Small Open Economy with Habit Formation and Nominal Rigidities written by Woon Gyu Choi and published by International Monetary Fund. This book was released on 2003 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Introducing habit formation into an open economy macroeconomic model with price stickiness, we examine the characteristics of an optimal monetary policy. We find that, first, the optimal policy rule entails interest rate smoothing and responds to the lagged values of the foreign interest rate and domestic technology shocks as well as their current values. Second, habit formation enriches the dynamics of the economy with a persistent, hump-shaped response of consumption to shocks. Finally, when habit formation does matter, the optimal policy rule achieves a greater welfare improvement over alternative policy rules by achieving lower macroeconomic variability.
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 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 Policy in a Small Open Economy with Credit Goods Production by : Mr.Jorge A. Chan-Lau
Download or read book Monetary Policy in a Small Open Economy with Credit Goods Production written by Mr.Jorge A. Chan-Lau and published by International Monetary Fund. This book was released on 1998-10-01 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper analyzes the effects of monetary policy in a dynamic model of a small open economy with cash and credit goods production, where government consumption is financed by seignorage. It shows that the interrelationships between the growth rate of the monetary aggregate and the technological properties of the economy have an important bearing on the existence and uniqueness of equilibrium, the optimal inflation rate, and the occurrence of explosive hyperinflations. In consequence, the paper concludes that monetary policy does matter in the long run.
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 Interest Rate Rules, Endogenous Cycles, and Chaotic Dynamics in Open Economies by : Mr.Marco Airaudo
Download or read book Interest Rate Rules, Endogenous Cycles, and Chaotic Dynamics in Open Economies written by Mr.Marco Airaudo and published by International Monetary Fund. This book was released on 2012-05-01 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present an extensive analysis of the consequences for global equilibrium determinacy in flexible-price open economies of implementing active interest rate rules, i.e., monetary rules where the nominal interest rate responds more than proportionally to inflation. We show that conditions under which these rules generate aggregate instability by inducing liquidity traps, endogenous cycles, and chaotic dynamics depend on specific characteristics of open economies. In particular, rules that respond to expected future inflation are more prone to induce endogenous cyclical and chaotic dynamics the more open the economy to trade.
Book Synopsis Optimal Monetary Policy in Closed Versus Open Economies by : Richard H. Clarida
Download or read book Optimal Monetary Policy in Closed Versus Open Economies written by Richard H. Clarida and published by . This book was released on 2001 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a new open economy macro model of optimal monetary for a small open economy. Our main result is that in this model, the optimal policy problem for the small open economy is isomorphic to the closed economy case studied in Clarida, Gali, Gertler (1999). In particular, the optimal policy can be implemented with a Taylor Rule under which the domestic interest rate adjusts to the equilibrium real interest rate and expected inflation in domestic prices.
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.
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 On Conditional Rules for Monetary Policy in a Small Open Economy by : Stephen S. Poloz
Download or read book On Conditional Rules for Monetary Policy in a Small Open Economy written by Stephen S. Poloz and published by . This book was released on 1988 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Optimal Simple Monetary Policy Rules in a Small Open Economy with Exchange Rate Imperfections by : Deming Luo
Download or read book Optimal Simple Monetary Policy Rules in a Small Open Economy with Exchange Rate Imperfections written by Deming Luo and published by . This book was released on 2008 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt:
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 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 Model Uncertainty and the Design of Robust Monetary Policy Rules in a Small Open Economy by : Daniel O. Beltran
Download or read book Model Uncertainty and the Design of Robust Monetary Policy Rules in a Small Open Economy written by Daniel O. Beltran and published by . This book was released on 2007 with total page 214 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Interest Rate Rules and Multiple Equilibria in the Small Open Economy by : Luis-Felipe Zanna
Download or read book Interest Rate Rules and Multiple Equilibria in the Small Open Economy written by Luis-Felipe Zanna and published by . This book was released on 2003 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Enabling Deep Negative Rates to Fight Recessions: A Guide by : Ruchir Agarwal
Download or read book Enabling Deep Negative Rates to Fight Recessions: A Guide written by Ruchir Agarwal and published by International Monetary Fund. This book was released on 2019-04-29 with total page 89 pages. Available in PDF, EPUB and Kindle. Book excerpt: The experience of the Great Recession and its aftermath revealed that a lower bound on interest rates can be a serious obstacle for fighting recessions. However, the zero lower bound is not a law of nature; it is a policy choice. The central message of this paper is that with readily available tools a central bank can enable deep negative rates whenever needed—thus maintaining the power of monetary policy in the future to end recessions within a short time. This paper demonstrates that a subset of these tools can have a big effect in enabling deep negative rates with administratively small actions on the part of the central bank. To that end, we (i) survey approaches to enable deep negative rates discussed in the literature and present new approaches; (ii) establish how a subset of these approaches allows enabling negative rates while remaining at a minimum distance from the current paper currency policy and minimizing the political costs; (iii) discuss why standard transmission mechanisms from interest rates to aggregate demand are likely to remain unchanged in deep negative rate territory; and (iv) present communication tools that central banks can use both now and in the event to facilitate broader political acceptance of negative interest rate policy at the onset of the next serious recession.
