Rules versus discretion on the choice between exchange-rate-targeting and monetary-aggregate-targeting
AbstractThis paper compares the performance of inflation and welfare loss between exchange-rate-targeting and monetary-aggregate-targeting regimes for a small-open economy characterized by a rational expectations model of the Phillips curve. We also consider rules-versus-discretion in policy. We obtain three interesting results. First, both regimes result in the same target rate of inflation and the smallest long-run welfare loss, if an active contingent rule is credibly followed. Second, when discretion is undertaken, an exchange-rate-targeting policy is always superior to a monetary-aggregate-targeting one. Third, for a simple fixed rule, Friedman-type's monetary-aggregate-targeting policy works better than exchange-rate-targeting only under specific circumstances.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Journal of Economic Policy Reform.
Volume (Year): 12 (2009)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://www.tandfonline.com/GPRE19
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.