Author: Warren J. TeasePublisher:
ISBN:
Category :
Languages : en
Pages : 19
Book Description
The Optimal Mix of Wage Indexation and Foreign Exchange Market Intervention
Author: Warren J. TeaseOptimal Foreign Exchange Market Intervention and Wage Indexation
Author: Rogério Lucas ZandamelaPublisher:
ISBN:
Category :
Languages : en
Pages : 48
Book Description
Optimal Wage Indexation, Foreign-exchange Intervention and Monetary Policy
Author: Joshua AizenmanPublisher:
ISBN:
Category : Foreign exchange
Languages : en
Pages : 47
Book Description
This paper deals with the design of optimal monetary policy and with the interaction between the optimal degrees of wage indexation and foreign exchange intervention. The model is governed by the characteristics of the stochastic shocks which affect the economy and by the information set that individuals possess. Because of cost of negotiations, nominal wages are assumed to be precontracted and wage adjustments follow a simple indexation rule that links wage changes to observed changes in price. The use of the price level as the only indicator for wage adjustments may not permit an efficient use of available information and, may result in welfare loss. The analysis specifies the optimal set of feedback rules that should govern policy aiming at the minimization of the welfare loss. These feedback rules determine the optimal response of monetary policy to changes in exchange rates, interest rates and foreign prices. The adoption of the optimal set of feedback rules results in the complete elimination of the welfare cost arising from the simple indexation rule and from the existence of nominal contracts. Since optimal policies succeed in the elimination of the distortions, issues concerning the nature of contracts and the implications of specific assumptions about disequilibrium positions become inconsequential. The analysis then proceeds to examine the interdependence between the optimal feedback rules and the optimal degree of wage indexation. It is shown that a rise in the degree of exchange rate flexibility raises the optimal degree of wage indexation. One of the key conclusions is the proposition that the number of independent feedback rules that govern a policy must equal the number of independent sources of information that influence the determination of the undistorted equilibrium. Thus, it is shown that with a sufficient number of feedback rules for monetary policy there may be no need to introduce wage indexation. It is also shown that an economy that is not able to choose freely an exc
Labour Markets, Wage Indexation and Exchange Rate Policy
Author: Jouko VilmunenPublisher:
ISBN:
Category : Foreign exchange
Languages : en
Pages : 168
Book Description
Wage Indexation and Exchange Market Intervention in a Small Open Economy
Author: Stephen J. TurnovskyPublisher:
ISBN:
Category : Economic stabilization
Languages : en
Pages : 46
Book Description
The analysis of this paper stresses the interdependence between wage indexation on the one hand, and exchange market intervention on the other, as tools of'macroeconomic stabilization policy in a small open economy subject to stochastic disturbances. It is shown how the choice of eitherpolicy instrument impinges on the effectiveness of the other. In particular, if the domestic money wage is fully indexed to some weighted average of the domestic and foreign price levels, then irrespective of what that chosen weight may be, exchange market intervention is rendered totally ineffective insofar as the stabilization of the real part of the domestic economy is concerned. Likewise, if the monetary authority intervenes in the exchange market so as to exactly accommodate for nominal movements in the demand for money, thereby rendering the excess demand for money dependent only upon real variables, then any form of wage indexation is totally ineffective for the stabilization of the real part of the system. In either polar case, the respective instrument can stabilize the domestic price level. Alternative combinations of policy for the stabilization for domestic and foreign disturbances are considered.
Exchange Rate Management: Theory and Evidence
Author: Keith PilbeamPublisher: Springer
ISBN: 1349117447
Category : Business & Economics
Languages : en
Pages : 233
Book Description
An examination of the economic justification for foreign exchange market intervention, the potential for such intervention to stabilize an economy and the distinction between sterilized and non-sterilized intervention.
On Optimal Monetary Policy and Exchange Market Intervention with Non Tradable Goods and Partial Wage Indexation
Author: George S. AlogoskoufisPublisher:
ISBN:
Category : Monetary policy
Languages : en
Pages : 36
Book Description
On Optimal Money Policy and Exchange Market Intervention with Non Tradable Goods and Partial Wage Indexation
Author: George S. AlogoskoufisPublisher:
ISBN:
Category : Economics
Languages : en
Pages :
Book Description
Foreign Exchange Intervention under Policy Uncertainty
Author: Gustavo AdlerPublisher: International Monetary Fund
ISBN: 1475520417
Category : Business & Economics
Languages : en
Pages : 40
Book Description
We study the use of foreign exchange (FX) intervention as an additional policy instrument in an environment with learning, where agents infer the central bank policy rules from its policy actions. Under full information, a central bank focused on stabilizing output and inflation can achieve better outcomes by using FX intervention as an additional policy tool. Under policy uncertainty, where agents perceive that monetary policy may also have exchange rate stabilization goals, the use of FX intervention entails a trade-off, reducing output volatility while increasing inflation volatility. While having an additional policy tool is always beneficial, we find that the optimal magnitude of intervention is higher in monetary policy regimes with lower uncertainty. These results indicate that the benefits of using FX intervention as an additional stabilization tool are greater in regimes where monetary policy is credibly focused on output and inflation stabilization.
Author: George S. Alogoskoufis