Monetary Policy And Exchange Rate Volatility In A Small Open Economy
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Monetary Policy And Exchange Rate Volatility In A Small Open Economy
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Author : Jonas Böhmer
language : en
Publisher: GRIN Verlag
Release Date : 2009-10
Monetary Policy And Exchange Rate Volatility In A Small Open Economy written by Jonas Böhmer and has been published by GRIN Verlag this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009-10 with categories.
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 cha
Monetary Policy And Exchange Rate Volatility In A Small Open Economy
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Author : Jordi Galí
language : en
Publisher:
Release Date : 2002
Monetary Policy And Exchange Rate Volatility In A Small Open Economy written by Jordi Galí and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002 with Anti-inflationary policies categories.
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.
Hybrid Inflation Targeting Regimes
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Author : Jorge Restrepo
language : en
Publisher: International Monetary Fund
Release Date : 2009-10-01
Hybrid Inflation Targeting Regimes written by Jorge Restrepo and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009-10-01 with Business & Economics categories.
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.
Inflation Targeting In A Small Open Economy
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Author : Alan Sutherland
language : en
Publisher:
Release Date : 2001
Inflation Targeting In A Small Open Economy written by Alan Sutherland and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2001 with Anti-inflationary policies categories.
Monetary Policy In Small Open Economies
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Author : Ana Maria Santacreu
language : en
Publisher:
Release Date : 2019
Monetary Policy In Small Open Economies written by Ana Maria Santacreu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
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.
Inflation Targeting Lite In Small Open Economies
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Author : International Monetary Fund
language : en
Publisher: International Monetary Fund
Release Date : 2005-09-01
Inflation Targeting Lite In Small Open Economies written by International Monetary Fund and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005-09-01 with Business & Economics categories.
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.
Inflation Targeting And Exchange Rate Rules In An Open Economy
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Author : Mr.Eric Parrado
language : en
Publisher: INTERNATIONAL MONETARY FUND
Release Date : 2004-02-01
Inflation Targeting And Exchange Rate Rules In An Open Economy written by Mr.Eric Parrado and has been published by INTERNATIONAL MONETARY FUND this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004-02-01 with Business & Economics categories.
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.
Exchange Rate Dynamics
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Author : Jean-OIiver Hairault
language : en
Publisher: Routledge
Release Date : 2003-12-18
Exchange Rate Dynamics written by Jean-OIiver Hairault and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003-12-18 with Business & Economics categories.
This important new book builds upon the seminal work by Obsfeld and Rogoff, Foundations of International Macroeconomics and aims at providing a coherent and modern framework for thinking about exchange rate dynamics. With a wide range of contributions, this book is likely to be welcomed by the macroeconomics and financial community.
Monetary Policy Rules In The Open Economy
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Author : Robert Kollmann
language : en
Publisher:
Release Date : 2002
Monetary Policy Rules In The Open Economy written by Robert Kollmann and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002 with Business cycles categories.
Discretionary Policy In A Small Open Economy
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Author : Christoph Himmels
language : en
Publisher:
Release Date : 2017
Discretionary Policy In A Small Open Economy written by Christoph Himmels and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
We study a Markov-perfect monetary policy in an open New Keynesian economy with incomplete financial markets. We analyze inflation and exchange rate targeting regimes and demonstrate that both cases may result in multiple equilibria. These equilibria feature qualitatively and quantitatively different economic dynamics following the same shock. The model can help us to understand sudden changes in the interest rate and exchange rate volatility in 'tranquil' and 'volatile' times under a fully credible 'soft peg' of the nominal exchange rate.