Advanced Search
MyIDEAS: Login to save this paper or follow this series

Inflation Targeting, Learning and Q Volatility in Small Open Economies

Contents:

Author Info

  • G. C. Lim

    ()
    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Paul D. McNelis

    (Fordham University)

Abstract

This paper examines the welfare implications of managing asset-price with consumer-price inflation targeting by monetary authorities who have to learn the laws of motion for both inflation rates. The central bank can reduce the volatility of consumption as well as improve welfare more effectively if it adopts state-contingent Taylor rules aimed at inflation and Qgrowth targets in this learning environment. However, under perfect model certainty, pure inflation targeting dominates combined consumer and asset-price inflation targeting.

Download Info

If 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.
File URL: http://www.melbourneinstitute.com/downloads/working_paper_series/wp2006n22.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2006n22.

as in new window
Length: 37 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:iae:iaewps:wp2006n22

Contact details of provider:
Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
Phone: +61 3 8344 2100
Fax: +61 3 8344 2111
Email:
Web page: http://www.melbourneinstitute.com/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
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.:
as in new window
  1. Campa, Jose M. & Goldberg, Linda S., 2002. "Exchange rate pass-through into import prices: A macro or micro phenomenon?," IESE Research Papers D/475, IESE Business School.
  2. George W. Evans & Seppo Honkapohja, 2004. "Adaptive learning and monetary policy design," Macroeconomics, EconWPA 0405008, EconWPA.
  3. Honkapohja, Seppo & Mitra, Kaushik, 2005. "Performance of monetary policy with internal central bank forecasting," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 29(4), pages 627-658, April.
  4. Detken, Carsten & Smets, Frank, 2004. "Asset price booms and monetary policy," Working Paper Series, European Central Bank 0364, European Central Bank.
  5. David Gruen & Michael Plumb & Andrew Stone, 2003. "How Should Monetary Policy Respond to Asset-price Bubbles?," RBA Research Discussion Papers, Reserve Bank of Australia rdp2003-11, Reserve Bank of Australia.
  6. Duffy, John & McNelis, Paul D., 2001. "Approximating and simulating the stochastic growth model: Parameterized expectations, neural networks, and the genetic algorithm," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 25(9), pages 1273-1303, September.
  7. Frank Smets, 1997. "Financial-asset Prices and Monetary Policy: Theory and Evidence," RBA Annual Conference Volume, in: Philip Lowe (ed.), Monetary Policy and Inflation Targeting Reserve Bank of Australia.
  8. Mendoza, Enrique G, 1995. "The Terms of Trade, the Real Exchange Rate, and Economic Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 101-37, February.
  9. Gilchrist, Simon & Leahy, John V., 2002. "Monetary policy and asset prices," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(1), pages 75-97, January.
  10. Judd, Kenneth L., 1996. "Approximation, perturbation, and projection methods in economic analysis," Handbook of Computational Economics, Elsevier, in: H. M. Amman & D. A. Kendrick & J. Rust (ed.), Handbook of Computational Economics, edition 1, volume 1, chapter 12, pages 509-585 Elsevier.
  11. Schmitt-Grohe, Stephanie & Uribe, Martin, 2003. "Closing small open economy models," Journal of International Economics, Elsevier, Elsevier, vol. 61(1), pages 163-185, October.
  12. Taylor, John B., 1998. "The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by the European Central Bank," Seminar Papers, Stockholm University, Institute for International Economic Studies 649, Stockholm University, Institute for International Economic Studies.
  13. Ben Bernanke & Mark Gertler, 2000. "Monetary Policy and Asset Price Volatility," NBER Working Papers 7559, National Bureau of Economic Research, Inc.
  14. Schmitt-Grohé, Stephanie & Uribe, Martín, 2004. "Optimal Simple and Implementable Monetary and Fiscal Rules," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4334, C.E.P.R. Discussion Papers.
  15. Bullard, James & Mitra, Kaushik, 2002. "Learning about monetary policy rules," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(6), pages 1105-1129, September.
  16. Marcet, Albert & Nicolini, Juan Pablo, 1998. "Recurrent Hyperinflations and Learning," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1875, C.E.P.R. Discussion Papers.
  17. Wright, Brian D & Williams, Jeffrey C, 1982. "The Economic Role of Commodity Storage," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(367), pages 596-614, September.
  18. Albert Marcet, 1991. "Simulation analysis of dynamic stochastic models: Applications to theory and estimation," Economics Working Papers 6, Department of Economics and Business, Universitat Pompeu Fabra.
  19. Swanson, Eric T., 2006. "Optimal nonlinear policy: signal extraction with a non-normal prior," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 30(2), pages 185-203, February.
  20. Bray, Margaret M & Savin, Nathan E, 1986. "Rational Expectations Equilibria, Learning, and Model Specification," Econometrica, Econometric Society, Econometric Society, vol. 54(5), pages 1129-60, September.
  21. Wouter J. den Haan & Albert Marcet, 1993. "Accuracy in simulations," Economics Working Papers 42, Department of Economics and Business, Universitat Pompeu Fabra.
  22. Rustem, Berc & Wieland, Volker & Zakovic, Stan, 2005. "Stochastic Optimization and Worst Case Analysis in Monetary Policy Design," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5019, C.E.P.R. Discussion Papers.
  23. Dupor, Bill, 2005. "Stabilizing non-fundamental asset price movements under discretion and limited information," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(4), pages 727-747, May.
  24. Hans M. Amman & David A. Kendrick, . "Computational Economics," Online economics textbooks, SUNY-Oswego, Department of Economics, SUNY-Oswego, Department of Economics, number comp1, Spring.
  25. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  26. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 39(1), pages 195-214, December.
  27. Ben S. Bernanke & Mark Gertler, 2001. "Should Central Banks Respond to Movements in Asset Prices?," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 253-257, May.
  28. den Haan, Wouter J & Marcet, Albert, 1990. "Solving the Stochastic Growth Model by Parameterizing Expectations," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 8(1), pages 31-34, January.
  29. Stephen G. Cecchetti & Hans Genberg & Sushil Wadhwani, 2002. "Asset Prices in a Flexible Inflation Targeting Framework," NBER Working Papers 8970, National Bureau of Economic Research, Inc.
  30. Jess Gaspar & Kenneth L. Judd, 1997. "Solving Large Scale Rational Expectations Models," NBER Technical Working Papers 0207, National Bureau of Economic Research, Inc.
  31. Wright, Brian D & Williams, Jeffrey C, 1984. "The Welfare Effects of the Introduction of Storage," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 99(1), pages 169-92, February.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iae:iaewps:wp2006n22. See general 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: (James Davis).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.