Inflation Targeting and Q Volatility in Small Open Economies
AbstractThis paper examines the welfare implications of managing Q with inflation targeting by monetary authorities who have to "learn" the laws of motion for both inflation and the rate of growth of Q. Our results show that the Central Bank can achieve great success in reducing the volatility of GDP growth with basically the same inflation volatility, if it incorporates this additional target into its policy regime. However, the welfare effects are generally lower, in terms of consumption, when the monetary authorithy reacts to Q growth as well as inflation
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 254.
Date of creation: 11 Aug 2004
Date of revision:
Tobin's Q; monetary policy; learning;
Other versions of this item:
- Paul D. McNelis & Guay C. Lim, 2004. "Inflation Targeting and Q Volatility in Small Open Economies," Econometric Society 2004 Far Eastern Meetings 505, Econometric Society.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-16 (All new papers)
- NEP-CBA-2004-08-16 (Central Banking)
- NEP-MON-2004-08-16 (Monetary Economics)
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.:
- William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
- James Tobin & William C. Brainard, 1976. "Asset Markets and the Cost of Capital," Cowles Foundation Discussion Papers 427, Cowles Foundation for Research in Economics, Yale University.
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