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Hybrid Inflation and Price Level Targeting in Small-Open-Economy

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Author Info
Douch, Mohamed

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Abstract

This paper examines whether a small open economy DSGE-based New Keynesian model can provide a natural framework for policy conduct with the use of a hybrid monetary policy regime. Allowing for some inflation inertia, we develop a small open economy version of the Calvo sticky price model to investigate hybrid inflation/price-level targeting. We explore the proprieties of monetary policy in terms of Taylor interest rate rules and conduct a welfare analysis on various specifications. Our analysis show that hybrid targeting outperforms others specifications and produces quantitatively good results by lowering output and inflation variabilities, compared to those regimes that target only price levels or inflation rates.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8734.

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Date of creation: Dec 2006
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Handle: RePEc:pra:mprapa:8734

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Related research
Keywords: Small Open Economy Monetary Policy Hybrid Targeting

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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