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Monetary Policy Under Commodity Price Fluctuations

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  • Roberto Chang

Abstract

This paper discusses monetary policy in a New Keynesian open economy subject to commodity price fluctuations. We review theoretical results that imply that stabilizing the producer price index (PPI) is optimal only under special circumstances. In a calibrated version of the model, PPI targeting is compared against a policy that stabilizes a forecast of the consumer price index. The results depend on model specifics, especially elasticities of substitution and the structure of international asset markets.

Suggested Citation

  • Roberto Chang, 2015. "Monetary Policy Under Commodity Price Fluctuations," Review of Development Economics, Wiley Blackwell, vol. 19(2), pages 282-296, May.
    • Handle: RePEc:bla:rdevec:v:19:y:2015:i:2:p:282-296
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    File URL: http://hdl.handle.net/10.1111/rode.12142
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    1. Bodenstein, Martin & Erceg, Christopher J. & Guerrieri, Luca, 2008. "Optimal monetary policy with distinct core and headline inflation rates," Journal of Monetary Economics, Elsevier, vol. 55(Supplemen), pages 18-33, October.
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    7. Luis Catão & Roberto Chang, 2013. "Monetary Rules for Commodity Traders," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(1), pages 52-91, April.
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