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Inflation Targeting Lite' in Small Open Economies

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  • International Monetary Fund
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    Abstract

    This paper develops a new macrofinance model for small open economies, allowing the investigation of Mauritius''s experience with ''inflation targeting lite'' as described in Stone (2003). It finds that this monetary policy regime has been associated with a general reduction in inflation, principally through a reduction in inflation expectations. The credibility the Bank of Mauritius has established with its ''inflation targeting lite'' regime has allowed it to shift from an emphasis on exchange rate targeting towards inflation targeting. By estimating a model in which the yield curve is modeled explicitly we are able to obtain estimates of inflation expectations.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/172.

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    Length: 25
    Date of creation: 01 Sep 2005
    Date of revision:
    Handle: RePEc:imf:imfwpa:05/172

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    Related research

    Keywords: Inflation targeting; Economic models; Exchange rate management; Exchange rate regimes; inflation; monetary policy; inflationary expectations; foreign exchange; central bank; inflation target; monetary fund; actual inflation; price stability; aggregate demand; monetary policy rule; real interest rate; annual inflation; monetary policy operations; inflation rate; monetary policy regime; low inflation; monetary policy objectives; fall in inflation; open market operations; rational expectations; monetary base; inflationary pressures; monetary policy instruments; effective exchange rates; reduction in inflation; monetary policy rules; inflation objective; financial stability; price level; inflation dynamics; inflation targeting regime; interest rate targeting; monetary shocks; lower inflation; lower inflationary expectations; monetary policy reaction function; money market; tight monetary policy; monetary union; government securities; aggregate demand curve; monetary policy framework; reserve requirements; treasury securities; monetary condition; liquidity management;

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    References

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    1. Jordi Galí & Tommaso Monacelli, 2004. "Monetary policy and exchange rate volatility in a small open economy," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 835, Department of Economics and Business, Universitat Pompeu Fabra.
    2. Peter Hoerdahl & Oreste Tristani, 2004. "A joint econometric model of macroeconomic and term structure dynamics," Econometric Society 2004 North American Summer Meetings, Econometric Society 379, Econometric Society.
    3. Frederic S. Mishkin, 2004. "Can Inflation Targeting Work in Emerging Market Countries?," NBER Working Papers 10646, National Bureau of Economic Research, Inc.
    4. GlennD. Rudebusch & Tao Wu, 2008. "A Macro-Finance Model of the Term Structure, Monetary Policy and the Economy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 118(530), pages 906-926, 07.
    5. Gaston Gelos & Alessandro Prati & Oya Celasun, 2004. "Obstacles to Disinflation," IMF Working Papers 04/111, International Monetary Fund.
    6. Eric Parrado, 2004. "Inflation Targeting and Exchange Rate Rules in an Open Economy," IMF Working Papers 04/21, International Monetary Fund.
    7. Oya Celasun & R. Gaston Gelos & Alessandro Prati, 2004. "Obstacles to disinflation: what is the role of fiscal expectations?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 19(40), pages 441-481, October.
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    Cited by:
    1. Naqvi, Bushra & Rizvi, Syed Kumail Abbas, 2008. "What Does Pakistan Have to Join Inflation Targeters Club, A Royal Flush or A Seven-Deuce Offsuit?," MPRA Paper 19575, University Library of Munich, Germany.
    2. AfDB AfDB, . "Africa Competitiveness Report 2009," Africa Competitiveness Report, African Development Bank, African Development Bank, number 11 edited by Adeleke Oluwole Salami, 9.
    3. Naqvi, Bushra & Rizvi, Syed Kumail Abbas, 2009. "Inflation Targeting Framework: Is the story different for Asian Economies?," MPRA Paper 19546, University Library of Munich, Germany.

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