Advanced Search
MyIDEAS: Login

CPI Inflation Targeting and Exchange Rate Pass-through

Contents:

Author Info

  • Alessandro Flamini

    (GIIS)

Abstract

This paper analyzes how imperfect exchange rate pass-through affects the transmission of the CPI inflation targeting optimal monetary policy. In the short run, delayed pass-through constraints monetary policy more than incomplete pass-through and interest rate smoothing amplifies this effect. In addition, imperfect pass-through does not increase the variability of the real exchange rate for a subset of strict CPI inflation targeting cases and for flexible CPI inflation targeting. Furthermore, there exists an inverse relation between the pass-through and the insulation of CPI inflation from foreign shocks, and when the pass-through falls, the impact on the trade-off between the stabilization of both CPI inflation and output depends on how strictly the central bank is targeting CPI inflation and on the kind of imperfect pass-through.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://128.118.178.162/eps/mac/papers/0306/0306017.pdf
Download Restriction: no

Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0306017.

as in new window
Length: 37 pages
Date of creation: 26 Jun 2003
Date of revision:
Handle: RePEc:wpa:wuwpma:0306017

Note: Type of Document - Acrobat PDF; prepared on IBM PC ; to print on HP; pages: 37 ; figures: included
Contact details of provider:
Web page: http://128.118.178.162

Related research

Keywords: Inflation Targeting; Exchange Rate Pass-through; Open-economy; Direct Exchange Rate Channel; Optimal Monetary Policy.;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Maurice Obstfeld & Kenneth Rogoff, 2000. "New Directions for Stochastic Open Economy Models," International Finance 0004002, EconWPA.
  2. Giancarlo Corsetti & Paolo Pesenti, 2001. "International dimensions of optimal monetary policy," Staff Reports 124, Federal Reserve Bank of New York.
  3. Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March.
  4. Michael B. Devereux & Philip Lane, 2001. "Exchange Rates and Monetary Policy in Emerging Market Economies," CEG Working Papers 20017, Trinity College Dublin, Department of Economics.
  5. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June.
  6. Lane, P.R. & Ganelli, G., 2002. "Dynamic General Equilibrium Analysis: The Open Economy Dimension," CEG Working Papers 20026, Trinity College Dublin, Department of Economics.
  7. Sven W. Arndt & J. David Richardson, 1988. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
  8. Philippe Bacchetta & Eric van Wincoop, 2002. "A theory of the currency denomination of international trade," International Finance Discussion Papers 747, Board of Governors of the Federal Reserve System (U.S.).
  9. Bacchetta, Philippe & van Wincoop, Eric, 2002. "A Theory of Currency Denomination of International Trade," CEPR Discussion Papers 3120, C.E.P.R. Discussion Papers.
  10. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June.
  11. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
  12. Richard Clarida & Jordi Gali & Mark Gertler, 2002. "A Simple Framework for International Monetary Policy Analysis," NBER Working Papers 8870, National Bureau of Economic Research, Inc.
  13. Backus, David & Driffill, John, 1986. "The Consistency of Optimal Policy in Stochastic Rational Expectations Models," CEPR Discussion Papers 124, C.E.P.R. Discussion Papers.
  14. Engel, Charles, 2002. "The Responsiveness of Consumer Prices to Exchange Rates: A Synthesis of Some New Open Economy Macro Models," Manchester School, University of Manchester, vol. 70(0), pages 1-15, Supplemen.
  15. Michael B. Devereux & Charles Engel, 2001. "Endogenous Currency of Price Setting in a Dynamic Open Economy Model," NBER Working Papers 8559, National Bureau of Economic Research, Inc.
  16. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, vol. 50(1), pages 215-244, February.
  17. Campa, José Manuel & Goldberg, Linda S, 2004. "Exchange Rate Pass-Through into Import Prices," CEPR Discussion Papers 4391, C.E.P.R. Discussion Papers.
  18. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
  19. Gilles Oudiz & Jeffrey Sachs, 1985. "International Policy Coordination In Dynamic Macroeconomic Models," NBER Chapters, in: International Economic Policy Coordination, pages 274-330 National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. William D. Craighead, 2012. "Monetary Rules and Sectoral Unemployment in Open Economies," Wesleyan Economics Working Papers 2012-001, Wesleyan University, Department of Economics.
  2. Mette Ersbak Bang Nielsen, . "Exchange Rate Targeting in a Small Open Economy," Borradores de Economia 367, Banco de la Republica de Colombia.
  3. Piotr Banbula & Witold Kozinski & Michal Rubaszek, 2011. "The role of the exchange rate in monetary policy in Poland," BIS Papers chapters, in: Bank for International Settlements (ed.), Capital flows, commodity price movements and foreign exchange intervention, volume 57, pages 285-295 Bank for International Settlements.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:0306017. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.