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Inflation Targeting Lite' in Small Open Economies: The Case of Mauritius

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  • International Monetary Fund

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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  • International Monetary Fund, 2005. "Inflation Targeting Lite' in Small Open Economies: The Case of Mauritius," IMF Working Papers 2005/172, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/172
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    References listed on IDEAS

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    1. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters, in: Monetary Policy Rules, pages 127-156, National Bureau of Economic Research, Inc.
    2. Hordahl, Peter & Tristani, Oreste & Vestin, David, 2006. "A joint econometric model of macroeconomic and term-structure dynamics," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 405-444.
    3. Glenn D. Rudebusch & Tao Wu, 2008. "A Macro‐Finance Model of the Term Structure, Monetary Policy and the Economy," Economic Journal, Royal Economic Society, vol. 118(530), pages 906-926, July.
    4. Frederic S. Mishkin, 2004. "Can Inflation Targeting Work in Emerging Market Countries?," NBER Working Papers 10646, National Bureau of Economic Research, Inc.
    5. Jordi Galí & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 707-734.
    6. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
    7. Oya Celasun & R. Gaston Gelos & Alessandro Prati, 2004. "Obstacles to disinflation: what is the role of fiscal expectations? [‘Disinflation with imperfect credibility’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 19(40), pages 442-481.
    8. Mr. Mark R. Stone, 2003. "Inflation Targeting Lite," IMF Working Papers 2003/012, International Monetary Fund.
    9. Mr. Eric Parrado, 2004. "Inflation Targeting and Exchange Rate Rules in an Open Economy," IMF Working Papers 2004/021, International Monetary Fund.
    10. International Monetary Fund, 2004. "Wage Compression, Employment Restrictions and Unemployment: The Case of Mauritius," IMF Working Papers 2004/205, International Monetary Fund.
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    Cited by:

    1. Ashwin Madhou & Tayushma Sewak & Imad Moosa & Vikash Ramiah & Florian Gerth, 2021. "Towards Full-Fledged Inflation Targeting Monetary Policy Regime in Mauritius," JRFM, MDPI, vol. 14(3), pages 1-18, March.
    2. 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.
    3. 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.
    4. AfDB AfDB, . "Africa Competitiveness Report 2009," Africa Competitiveness Report, African Development Bank, number 11 edited by Adeleke Oluwole Salami.
    5. Alvaro Angeriz & Philip Arestis, 2007. "Assessing the Performance of ‘Inflation Targeting Lite’ Countries," The World Economy, Wiley Blackwell, vol. 30(11), pages 1621-1645, November.

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