Monetary Policy Rules In The Open Economy

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Monetary Policy Rules For An Open Economy

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Author : Nicoletta Batini
language : en
Publisher:
Release Date : 2005

Monetary Policy Rules For An Open Economy written by Nicoletta Batini and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with categories.

The most popular simple rule for the interest rate, due to Taylor, is meant to inform monetary policy in closed economies. On the other hand, its main open-economy alternative, Ball's rule based on a monetary conditions index (MCI), may perform poorly in the face of specific types of exchange rate shocks, and thus cannot offer guidance for the day-to-day conduct of monetary policy. In this paper, a comprehensive set of simple monetary policy rules (including the MCI-based and Taylor versions) is specified and evaluated, all suitable for small open economies in general, and for the United Kingdom in particular. The asymptotic properties of a two-sector open-economy dynamic stochastic general equilibrium model calibrated on UK data are compared under the different rules. It is found that an inflation-forecast-based rule (IFB), i.e., one that reacts to deviations of expected inflation from target, performs well. Adding a separate response to the level of the real exchange rate (contemporaneous and lagged) appears to reduce the difference in adjustment between output gaps in the two sectors of the economy, but the improvement is only marginal. Importantly, an IFB rule, with or without exchange rate adjustment, appears robust to different shocks, in contrast to naive or Ball's MCI-based rules.

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.

Alternative Monetary Policy Rules In An Open Economy

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Author : Hongsung Moon
language : en
Publisher:
Release Date : 1997

Alternative Monetary Policy Rules In An Open Economy written by Hongsung Moon and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1997 with Monetary policy categories.

This paper investigates theoretically and empirically which monetary policy rule is optimal for minimizing the expected social loss function among possible monetary policy rules in closed and open economies. This paper incorporates IS and LM relationships in the basic economic model such that aggregate demand shocks can be further decomposed into IS and LM shocks and the effects of the shocks can be analyzed. This paper finds no evidence that the nominal GDP rule is the optimal under all circumstances, but that the optimality of monetary policy rule depends significantly on the parameters of the model. In the open economy model, the major findings are as follows: First, a high sensitivity of real interest rate on real expenditure favors the nominal GDP rule. Second, a large and equivalent weight placed on inflation stability and exchange rate stability in the loss function favors the exchange rate rule, and a large weight placed on inflation stability relative to exchange rate stability favors the nominal GDP rule. Third, a large slope coefficient in a Lucas supply function tends to favor the nominal GDP rule.

Monetary Policy Rules For Financially Vulnerable Economies

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Author : Mr.Eduardo Morón
language : en
Publisher: International Monetary Fund
Release Date : 2003-02-01

Monetary Policy Rules For Financially Vulnerable Economies written by Mr.Eduardo Morón 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 2003-02-01 with Business & Economics categories.

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.

The Empirics Of Monetary Policy Rules In Open Economies

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Author : Richard H. Clarida
language : en
Publisher:
Release Date : 2001

The Empirics Of Monetary Policy Rules In Open Economies written by Richard H. Clarida and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2001 with Foreign exchange rates categories.

Monetary Policy Rules For A Small Open Economy

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Author : Wolfram Berger
language : en
Publisher:
Release Date : 2008

Monetary Policy Rules For A Small Open Economy written by Wolfram Berger and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.

In this paper, the optimal choice of a monetary target is investigated for a small open economy that is subject to foreign monetary policy shocks. In contrast to large parts of the literature, pegging the exchange rate is never the best policy choice for the small open economy in our model. Instead, monetary targeting and, depending on the parameter combination, producer price index targeting come closest to the optimal policy rule in terms of welfare. Generally, the welfare performance of the simple targeting rules under consideration hinge critically on the degree of pass-through in the home economy and in the rest of the world.

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

Conducting Monetary Policy In Large Open Economies

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Author : Akila Weerapana
language : en
Publisher:
Release Date : 1999

Conducting Monetary Policy In Large Open Economies written by Akila Weerapana and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with categories.

Optimal Monetary Policy In A Small Open Economy With Habit Formation And Nominal Rigidities

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Author : Woon Gyu Choi
language : en
Publisher: International Monetary Fund
Release Date : 2003

Optimal Monetary Policy In A Small Open Economy With Habit Formation And Nominal Rigidities written by Woon Gyu Choi 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 2003 with Business & Economics categories.

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.

Monetary Policy Rules

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Author : John B. Taylor
language : en
Publisher: University of Chicago Press
Release Date : 2007-12-01

Monetary Policy Rules written by John B. Taylor and has been published by University of Chicago Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007-12-01 with Business & Economics categories.

This timely volume presents the latest thinking on the monetary policy rules and seeks to determine just what types of rules and policy guidelines function best. A unique cooperative research effort that allowed contributors to evaluate different policy rules using their own specific approaches, this collection presents their striking findings on the potential response of interest rates to an array of variables, including alterations in the rates of inflation, unemployment, and exchange. Monetary Policy Rules illustrates that simple policy rules are more robust and more efficient than complex rules with multiple variables. A state-of-the-art appraisal of the fundamental issues facing the Federal Reserve Board and other central banks, Monetary Policy Rules is essential reading for economic analysts and policymakers alike.