Monetary Policy Rules and Transmission Mechanisms Under Inflation Targeting in Israel
AbstractThis paper analyzes Israel's recent inflation targeting policies and their role in the disinflation process in the 1990s. Special features of Israel underlying inflation targeting are: a high-inflation history; lack of consensus about the benefits from reducing inflation and thereby lack of full credibility of monetary policy; the existence of monetary policy overburdening in its attempts to meet the inflation targets; the coexistence of an exchange rate band together with the inflation targets. A key finding of the econometric analysis is that there is a time-varying passthrough from exchange rates to prices, which depends on the state of the business cycle and the size of exchange rate fluctuations. In the present empirical specifications, monetary conditions are shown to have played a key role in accounting for the various turning points along the disinflation process. Estimates of an analogue of a 'Taylor rule' indicate that in contrast with the monetary accommodation that prevailed in the past, monetary policy in the more recent years has acted as an inflation stabilizer.
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Bibliographic InfoPaper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 71.
Date of creation: 2000
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-10 (All new papers)
- NEP-CBA-2002-02-15 (Central Banking)
- NEP-IFN-2002-02-15 (International Finance)
- NEP-MON-2002-02-15 (Monetary Economics)
- NEP-PKE-2002-02-15 (Post Keynesian Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ben S. Bernanke & Michael Woodford, 1997.
"Inflation forecasts and monetary policy,"
Federal Reserve Bank of Cleveland, pages 653-686.
- Bennett T. McCallum, 2000.
"The Present and Future of Monetary Policy Rules,"
NBER Working Papers
7916, National Bureau of Economic Research, Inc.
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