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An extended model of currency options applicable as policy tool for central banks with inflation targeting and dollarized economies

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  • Arizmendi, Luis-Felipe

Abstract

The purpose of this paper is to provide a new set of tools for policy makers at central banks. Based on the Garman-Kohlhagen formula for currency options, this research extends it with the Taylor-rule expression used for inflation targeting, thus obtaining the corresponding Call and Put options and higher-degree partial derivatives known as "Greeks" for key variables such as the policy target domestic interest rate and the output gap.

Suggested Citation

  • Arizmendi, Luis-Felipe, 2013. "An extended model of currency options applicable as policy tool for central banks with inflation targeting and dollarized economies," MPRA Paper 52880, University Library of Munich, Germany, revised 15 Apr 2013.
    • Handle: RePEc:pra:mprapa:52880
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    References listed on IDEAS

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    Cited by:

    1. Pal, Sumantra, 2018. "How to intervene in foreign exchange market without buying/selling dollars?," EconStor Preprints 181880, ZBW - Leibniz Information Centre for Economics.
    2. Helena G. Keefe & Erick W. Rengifo, 2019. "Currency Options, Implied Interest Rates and Inflation Targeting," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(2), pages 119-136, February.

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    More about this item

    Keywords

    Inflation Targeting; Central bank policies; Exchange rates; Currency options.;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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