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Comparing Monetary Policy Strategies: Towards a Generalized Reaction Function

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Author Info
Felix Hammermann
Abstract

There seems to be no consensus in the literature with respect to monetary policy strategies in combination with flexible exchange rate regimes. Therefore, this paper determines what the alternative strategies inflation targeting, Taylor rule, monetary conditions index, and managed floating have in common. The fact that all strategies build on reaction functions which use the short-term interest rate as an important or even the single monetary policy instrument allows a generalized reaction function for all strategies to be derived. Future research may use such a generalized reaction function for describing and determining monetary policy in emerging market economies with flexible exchange rate regimes.

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1170.

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Length: 28 pages
Date of creation: Jun 2003
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Handle: RePEc:kie:kieliw:1170

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Related research
Keywords: Monetary Policy; Inflation Targeting; Taylor Rule; Monetary Conditions Index; Managed Floating;

Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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  1. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring. [Downloadable!] (restricted)
  2. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August. [Downloadable!] (restricted)
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  3. Kari H. Eika & Neil R. Ericsson & Ragnar Nymoen, 1996. "Hazards in implementing a monetary conditions index," International Finance Discussion Papers 568, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  4. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, December.
  5. Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, vol. 83(5), pages 1356-69, December. [Downloadable!] (restricted)
  6. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February. [Downloadable!] (restricted)
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  7. Peter Breuer, 1999. "Central Bank Participation in Currency Options Markets," IMF Working Papers 99/140, International Monetary Fund.
  8. Bofinger, Peter & Wollmershaeuser, Timo, 2001. "Managed Floating: Understanding the New International Monetary Order," CEPR Discussion Papers 3064, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. 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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  10. Nicoletta Batini & Andrew G Haldane, . "Forward-looking rules for monetary policy," Bank of England working papers 91, Bank of England. [Downloadable!]
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