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Stabilizing Inflation in Iceland

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Author Info
Keiko Honjo
Ben Hunt
Abstract

This paper provides some empirical estimates on how tightly is it feasible to control inflation in a very small open economy such as Iceland. Estimated macroeconomic models of Canada, Iceland, New Zealand, the United Kingdom, and the United States are used to derive efficient monetary policy frontiers that trace out the locus of the lowest combinations of inflation and output variability that are achievable under a range of alternative monetary policy rules. These frontiers illustrate that inflation stabilization is more challenging in Iceland than in other industrial countries primarily because of the relative magnitudes of the economic shocks.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/262.

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Length: 35 pages
Date of creation: 28 Nov 2006
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Handle: RePEc:imf:imfwpa:06/262

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Related research
Keywords: Efficient policy frontier ; monetary policy rules ; inflation-output variability tradeoff ; policy coordination ; Inflation ; Iceland ; Monetary policy ; Economic stabilization ; Economic models ;

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  14. Athanasios Orphanides & John C. Williams, 2005. "Monetary policy with imperfect knowledge," Finance and Economics Discussion Series 2005-51, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  15. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June. [Downloadable!] (restricted)
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  16. Philippe D Karam & Douglas Laxton & Andrew Berg, 2006. "Practical Model-Based Monetary Policy Analysis--A How-To Guide," IMF Working Papers 06/81, International Monetary Fund. [Downloadable!]
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Full references

Cited by:
(explanations, 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.)

  1. Keiko Honjo, 2007. "The Golden Rule and the Economic Cycles," IMF Working Papers 07/199, International Monetary Fund. [Downloadable!]
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