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Oman's monetary policy transmission process under the fixed peg: some empirical puzzles

  • Sitikantha Pattanaik

This paper highlights that an open economy, like Oman, could often enjoy partial monetary policy independence despite operating with a fixed peg, which may appear as a clear violation of the 'macroeconomic trilemma'. While explaining the country-specific factors that create the scope for partial monetary policy independence, the paper underscores that for meaningful use of this partial monetary policy independence to attain domestic goals of inflation and output, the transmission mechanism of monetary policy must work effectively. Empirical analyses presented in this paper for Oman, however, suggest the presence of not only the 'interest rate puzzle' but also the 'IS puzzle' and the 'Phillips curve puzzle', which together signal the presence of significant transmission weaknesses. The paper, thus, concludes that costs stemming from loss of any monetary policy independence because of the fixed peg may not be very significant for Oman, and hence, any alternative exchange rate regime cannot be viewed as appropriate just on the grounds that an alternative regime could deliver greater monetary policy independence.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/17520840802252225
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Article provided by Taylor & Francis Journals in its journal Macroeconomics and Finance in Emerging Market Economies.

Volume (Year): 1 (2008)
Issue (Month): 2 ()
Pages: 181-198

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Handle: RePEc:taf:macfem:v:1:y:2008:i:2:p:181-198
DOI: 10.1080/17520840802252225
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  1. Rudebusch, Glenn D. & Svensson, Lars E. O., 1999. "Eurosystem Monetary Targeting: Lessons from U.S. Data," Working Paper Series 92, Sveriges Riksbank (Central Bank of Sweden).
  2. Maurice Obstfeld & Jay Shambaugh & Alan Taylor, 2004. "The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility," International Finance 0407003, EconWPA.
  3. Ben S. Bernanke & Alan S. Blinder & Bennett T. McCallum, 2005. "Panel discussion I: what have we learned since October 1979?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 277-292.
  4. Nelson, Edward, 2001. "What Does the UK's Monetary Policy and Inflation Experience Tell Us About the Transmission Mechanism?," CEPR Discussion Papers 3047, C.E.P.R. Discussion Papers.
  5. Marvin Goodfriend, 2005. "The monetary policy debate since October 1979: lessons for theory and practice," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 243-262.
  6. Alan S. Blinder, 2005. "What Have We Learned since October 1979?," Working Papers 97, Princeton University, Department of Economics, Center for Economic Policy Studies..
  7. repec:pri:cepsud:105blinder is not listed on IDEAS
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