IDEAS home Printed from https://ideas.repec.org/a/fau/fauart/v58y2008i3-4p166-194.html
   My bibliography  Save this article

Exchange Rate Management and Inflation Targeting: Modeling the Exchange Rate in Reduced-Form New Keynesian Models

Author

Listed:

Abstract

This paper introduces a strategy for modeling the exchange rate when the monetary authority targets inflation while also managing the exchange rate using interventions. It does so in the framework of a standard reduced-form New Keynesian model of monetary transmission used in many institutions for research, forecasting, and monetary policy analysis. We propose a microfounded modification to the UIP condition which allows for modeling of informal exchange rate bands. Our modeling strategy is useful for most hybrid IT regimes, including those with imperfect control over market interest rates.

Suggested Citation

  • Jaromír Beneš & Jaromír Hurník & David Vávra, 2008. "Exchange Rate Management and Inflation Targeting: Modeling the Exchange Rate in Reduced-Form New Keynesian Models," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 58(03-04), pages 166-194, May.
  • Handle: RePEc:fau:fauart:v:58:y:2008:i:3-4:p:166-194
    as

    Download full text from publisher

    File URL: http://journal.fsv.cuni.cz/storage/1128_str_166_194--benes-hurnik-vavra.pdf
    Download Restriction: no

    Citations

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


    Cited by:

    1. Jaromir Benes & Andrew Berg & Rafael Portillo & David Vavra, 2015. "Modeling Sterilized Interventions and Balance Sheet Effects of Monetary Policy in a New-Keynesian Framework," Open Economies Review, Springer, vol. 26(1), pages 81-108, February.
    2. Patricia Carballo & José Ignacio González & Margarita Güenaga & José Mourelle & Gabriela Romaniello, 2015. "Un modelo semi estructural de proyecciones macroeconómicas para el Uruguay," Documentos de trabajo 2015012, Banco Central del Uruguay.
    3. Hove, Seedwell & Touna Mama, Albert & Tchana Tchana, Fulbert, 2015. "Monetary policy and commodity terms of trade shocks in emerging market economies," Economic Modelling, Elsevier, vol. 49(C), pages 53-71.
    4. Ales Bulir & Jaromir Hurnik & Katerina Smidkova, 2013. "Inflation Reports and Models: How Well Do Central Banks Really Write?," Working Papers 2013/03, Czech National Bank, Research Department.
    5. repec:ksp:journ1:v:4:y:2017:i:2:p:159-177 is not listed on IDEAS
    6. Patrick Blagrave & Peter Elliott & Roberto Garcia-Saltos & Douglas Hostland & Douglas Laxton & Fan Zhang, 2013. "Adding China to the Global Projection Model," IMF Working Papers 13/256, International Monetary Fund.
    7. Josef Arlt & Martin Mandel, 2012. "Je možné předpovídat repo sazbu ČNB na základě zpět hledícího měnového pravidla?
      [Is it Possible to Predict the CNB Repo Rate on the Basis of the Backward-Looking Monetary Rule?]
      ," Politická ekonomie, University of Economics, Prague, vol. 2012(4), pages 484-504.
    8. Tibor Hledik & Sultanija Bojceva-Terzijan & Biljana Jovanovic & Rilind Kabashi, 2016. "Overview of the Macedonian Policy Analysis Model (MAKPAM)," Working Papers 2016-04, National Bank of the Republic of Macedonia.
    9. Castillo, Carlos, 2014. "Inflation targeting and exchange rate volatility smoothing: A two-target, two-instrument approach," Economic Modelling, Elsevier, vol. 43(C), pages 330-345.
    10. Bin Grace Li & Stephen A. O'Connell & Christopher S Adam & Andrew Berg & Peter J Montiel, 2016. "VAR meets DSGE; Uncovering the Monetary Transmission Mechanism in Low-Income Countries," IMF Working Papers 16/90, International Monetary Fund.
    11. Luisa Charry & Pranav Gupta & Vimal V Thakoor, 2014. "Introducing a Semi-Structural Macroeconomic Model for Rwanda," IMF Working Papers 14/159, International Monetary Fund.
    12. Juraj Antal & Frantisek Brazdik & Jan Bruha & Martin Fukac & Adrian Pagan & Jiri Podpiera & Stanislav Polak & Yuliya Rychalovska, 2008. "CNB Economic Research Bulletin: Inflation Targeting and DSGE Models," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 6, number rb06/2 edited by Juraj Antal & Jan Babecky.
    13. Ion PARTACHI & Simion MIJA, 2013. "Monetary Policy Transmission Mechanism Using Econometric Models," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 61(4), pages 148-157, December.

    More about this item

    Keywords

    IT regimes; New Keynesian model; exchange rate; UIP;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fau:fauart:v:58:y:2008:i:3-4:p:166-194. 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: (Lenka Herrmannova). General contact details of provider: http://edirc.repec.org/data/icunicz.html .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.