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Current Issues in the Design and Conduct of Monetary Policy

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  • Mohsin S. Khan

Abstract

Movements in global capital during the late 1990s and the greater emphasis on price stability led many countries to abandon fixed exchange rate regimes and to design institutions and monetary policies to achieve credibility in the goal of lowering inflation. Such recent developments have brought to the forefront the idea that freely mobile capital, independent monetary policy, and fixed exchange rates form an "impossible trinity." It is possible to have two of these policies, but not all three. Inflation-targeting regimes being adopted by many countries provide a way of resolving this dilemma.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/56.

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Length: 18
Date of creation: 01 Mar 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/56

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Keywords: Inflation targeting; Monetary policy instruments; inflation; monetary policy; central bank; monetary aggregates; price stability; inflation target; inflation rate; monetary fund; inflation targeting framework; inflation-targeting; foreign exchange; inflation targeting regime; monetary aggregate; independent monetary policy; high inflation; inflation rates; rate of inflation; monetary targets; inflationary expectations; low inflation; monetary economics; demand for money; long-term interest rates; monetary instruments; aggregate demand; money growth; monetary transmission; monetary regimes; monetary regime; inflation forecasts; monetary policy instrument; monetary system; monetary policy strategies; wage inflation; real value; european monetary union; monetary policy objectives; money demand; lower inflation; real output; lower inflationary expectations; monetary transmission process; monetary framework; monetary target; monetary policy regime; monetary policies; monetary policy rules; inflation objective; inflation targeting ? regime; monetary authorities; monetary independence; experience of inflation; reserve requirements; monetary systems; monetary economy; monetary frameworks; higher rate of inflation; monetary management; expansionary monetary policy; monetary union;

References

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  1. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  2. Marc Zelmer & Andrea Schaechter, 2000. "Adopting Inflation Targeting," IMF Occasional Papers 202, International Monetary Fund.
  3. Leonardo Hernández & Peter J. Montiel, 2002. "Post-crisis exchange rate policy in five Asian countries: filling in the "hollow middle"?," Pacific Basin Working Paper Series 2002-07, Federal Reserve Bank of San Francisco.
  4. Calvo, Guillermo A, 1978. "On the Time Consistency of Optimal Policy in a Monetary Economy," Econometrica, Econometric Society, vol. 46(6), pages 1411-28, November.
  5. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  6. Mishkin, Frederic S. & Savastano, Miguel A., 2001. "Monetary policy strategies for Latin America," Journal of Development Economics, Elsevier, vol. 66(2), pages 415-444, December.
  7. Reinhart, Carmen & Calvo, Guillermo, 2001. "Fixing for your life," MPRA Paper 13873, University Library of Munich, Germany.
  8. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  9. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  10. McCallum, Bennett T, 2000. "The Present and Future of Monetary Policy Rules," International Finance, Wiley Blackwell, vol. 3(2), pages 273-86, July.
  11. Marc Zelmer & Andrea Schaechter & Mark R. Stone & Alina Carare, 2002. "Establishing Initial Conditions in Support of Inflation Targeting," IMF Working Papers 02/102, International Monetary Fund.
  12. A. Senhadji Semlali & Mohsin S. Khan, 2000. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Working Papers 00/110, International Monetary Fund.
  13. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  14. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
  15. Leonardo Hernández & Peter Montiel, 2001. "Post-Crisis Exchange Rate Policy in Five Asian Countries," IMF Working Papers 01/170, International Monetary Fund.
  16. Jeffrey Frankel & Sergio Schmukler & Luis Serven, 2000. "Verifiability and the Vanishing Intermediate Exchange Rate Regime," NBER Working Papers 7901, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Gilda Fernandez & Cem Karacadag & Rupa Duttagupta, 2004. "From Fixed to Float," IMF Working Papers 04/126, International Monetary Fund.
  2. Ibrahim L. AWAD, 2008. "Is Egypt Ready to Apply Inflation Targeting Regime?," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 2, pages 141-159, November.
  3. Ibrahim L. Awad, 2009. "Did Egypt Satisfy Prerequisites for an it Regime?," Acta Oeconomica Pragensia, University of Economics, Prague, vol. 2009(6), pages 63-80.
  4. Witold Jakóbik, 2007. "On the Fundamental Principles of Economic Policy," Contemporary Economics, University of Finance and Management in Warsaw, vol. 1(2), June.
  5. Grand Nathalie & Dropsy Vincent, 2005. "Exchange Rate And Inflation Targeting In Morocco And Tunisia," Macroeconomics 0507018, EconWPA.
  6. Selim Elekdag & Nabil Ben Ltaifa & Todd Schneider & Saade Chami, 2007. "Can a Rule-Based Monetary Policy Framework Work in a Developing Country? the Case of Yemen," IMF Working Papers 07/6, International Monetary Fund.

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