Author: Stephen S. PolozPublisher:
ISBN:
Category : Monetary policy
Languages : en
Pages : 32
Book Description
On Conditional Rules for Monetary Policy in a Small Open Economy
Author: Stephen S. PolozPublisher:
ISBN:
Category : Monetary policy
Languages : en
Pages : 32
Book Description
Optimal and Conditionally Optimal Targeting Rules for Small Open Economies
Author: Richard DennisPublisher:
ISBN:
Category : Economic policy
Languages : en
Pages : 56
Book Description
On Conditional Rules for Monetary Policy in a Small Open Economy
Author: Bank of CanadaPublisher:
ISBN:
Category : Monetary policy
Languages : en
Pages : 0
Book Description
ON CONDITIONAL RULE FOR MONETARY POLICY IN A SMALL OPEN ECONOMY
Author: Stephen S. POLOZ“Monetary and Fiscal Rules in an Emerging Small Open Economy”
Author: Nicoletta BatiniPublisher: International Monetary Fund
ISBN: 1451871694
Category : Business & Economics
Languages : en
Pages : 80
Book Description
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.
Monetary Policy in Small Open Economies
Author: Ana Maria SantacreuPublisher:
ISBN:
Category :
Languages : en
Pages : 16
Book Description
Understanding the costs and benefits of alternative monetary policy rules is important for economic welfare. Within the context of a small open economy model and building on the work of Mihov and Santacreu (2013), the author analyzes the economic implications of two monetary policy rules. The first is a rule in which the central bank uses the nominal exchange rate as its policy instrument and adjusts the rate whenever there are changes in the economic environment. The second is a standard interest rate rule in which the central bank adjusts the short-term nominal interest rate to changes in the economic environment. The main finding of the analysis is that, if the uncovered interest parity condition that establishes a tight link between the interest rate differential in two countries and the expected rate of depreciation of their currencies does not hold, the exchange rate rule outperforms the standard interest rate rule in lowering the volatility of key economic variables. There are two main reasons for this: First, the actual implementation of the exchange rate rule avoids the overshooting effect on exchange rates characteristic of an interest rate rule. And second, the risk premium that generates deviations from the uncovered interest parity condition is smaller and less volatile under an exchange rate rule.
Hybrid Inflation Targeting Regimes
Author: Jorge RestrepoPublisher: International Monetary Fund
ISBN: 1451873816
Category : Business & Economics
Languages : en
Pages : 59
Book Description
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.
On the use of Monetary and Macroprudential Policies for Small Open Economies
Author: Mr.F. Gulcin OzkanPublisher: International Monetary Fund
ISBN: 1498375421
Category : Business & Economics
Languages : en
Pages : 34
Book Description
We explore optimal monetary and macroprudential policy rules for a small open economy. Delegating 'lean against the wind' squarely to macroprudential policy provides a more robust policy mix to shock uncertainty—(i) if macroprudential measures exist, there are no significant welfare gains from monetary policy reacting to credit growth under a financial shock; and (ii) monetary responses to financial markets could generate bigger welfare losses than macroprudential responses under different shocks. The source of outstanding liabilities also plays a role in the choice of policy instrument— macroprudential policies are particularly effective for emerging markets where foreign borrowing is sizeable.
Does Inflation Targeting Matter?
Author: Laurence M. BallPublisher:
ISBN:
Category : Anti-inflationary policies
Languages : en
Pages : 40
Book Description
This paper asks whether inflation targeting improves economic performance, as measured by the behavior of inflation, output, and interest rates. We compare seven OECD countries that adopted inflation targeting in the early 1990s to thirteen that did not. After the early 90s, performance improved along many dimensions for both the targeting countries and the non-targeters. In some cases the targeters improved by more; for example, average inflation fell by a larger amount. However, these differences are explained by the facts that targeters performed worse than non-targeters before the early 90s, and there is regression to the mean. Once one controls for regression to the mean, there is no evidence that inflation targeting improves performance.
Monetary Policy Rules for Financially Vulnerable Economies
Author: Eduardo MorónPublisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 46
Book Description
One distinguishable characteristic of emerging market economies is that they are not financially robust. These economies are incapable of smoothing out large external shocks, as sudden capital outflows imply large and abrupt swings in the real exchange rate. Using a small open-economy model, this paper examines alternative monetary policy rules for economies with different degrees of liability dollarization. The paper answers the question of how efficient it is to use inflation targeting under high liability dollarization. Our findings suggest that it might be optimal to follow a nonlinear policy rule that defends the real exchange rate in a financially vulnerable economy.