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DOWNLOAD EBOOKThe 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.
Author: Richard Dennis
Publisher:
Published: 2000
Total Pages: 38
ISBN-13:
DOWNLOAD EBOOKThe 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.
Author: Richard Dennis
Publisher:
Published: 1999
Total Pages: 56
ISBN-13:
DOWNLOAD EBOOKAuthor: Wolfram Berger
Publisher:
Published: 2008
Total Pages: 0
ISBN-13:
DOWNLOAD EBOOKIn 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.
Author: Nicoletta Batini
Publisher:
Published: 2009
Total Pages: 80
ISBN-13:
DOWNLOAD EBOOKWe 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.
Author: Rajesh Singh
Publisher:
Published: 2008
Total Pages: 0
ISBN-13:
DOWNLOAD EBOOKThis paper studies how the nature of shocks affects the optimal choice of monetary policy instruments in a small open economy. Three classic rules, fixed exchange rates, monetary targeting, and inflation targeting are studied and ranked by comparing with the optimal monetary policy under commitment. We find that the ranking of the simple rules can be mapped to the terms-of-trade variability that the rule allows relative to what a particular shock optimally calls for. It turns out that inflation targeting dominates the other two rules under productivity or velocity shocks, whereas monetary targeting is the best performer under fiscal shocks.
Author: John B. Taylor
Publisher: University of Chicago Press
Published: 2007-12-01
Total Pages: 460
ISBN-13: 0226791262
DOWNLOAD EBOOKThis 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.
Author: Benjamin M. Friedman
Publisher:
Published: 1990
Total Pages: 0
ISBN-13:
DOWNLOAD EBOOKAuthor: Camila Casas
Publisher: International Monetary Fund
Published: 2017-11-22
Total Pages: 62
ISBN-13: 1484330609
DOWNLOAD EBOOKMost trade is invoiced in very few currencies. Despite this, the Mundell-Fleming benchmark and its variants focus on pricing in the producer’s currency or in local currency. We model instead a ‘dominant currency paradigm’ for small open economies characterized by three features: pricing in a dominant currency; pricing complementarities, and imported input use in production. Under this paradigm: (a) the terms-of-trade is stable; (b) dominant currency exchange rate pass-through into export and import prices is high regardless of destination or origin of goods; (c) exchange rate pass-through of non-dominant currencies is small; (d) expenditure switching occurs mostly via imports, driven by the dollar exchange rate while exports respond weakly, if at all; (e) strengthening of the dominant currency relative to non-dominant ones can negatively impact global trade; (f) optimal monetary policy targets deviations from the law of one price arising from dominant currency fluctuations, in addition to the inflation and output gap. Using data from Colombia we document strong support for the dominant currency paradigm.
Author: Laurence M. Ball
Publisher:
Published: 2003
Total Pages: 40
ISBN-13:
DOWNLOAD EBOOKThis 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.
