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Monetary Rules for Emerging Market Economies

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  • Alessandro Rebucci
  • Fabio Ghironi

Abstract

We compare the performance of a currency board, inflation targeting, and dollarization in a small, open developing economy with a liberalized capital account. We focus on the transmission of shocks to currency and country risk premia and on the role of fluctuations in premia in the propagation of other shocks. We calibrate our model on Argentina. The framework matches the second moments of key variables well. Welfare analysis suggests that dollarization is preferable to alternative regimes because it removes currency premium volatility. However, a currency board can match dollarization on welfare grounds if the central bank holds a sufficiently large stock of foreign reserves.

Suggested Citation

  • Alessandro Rebucci & Fabio Ghironi, 2002. "Monetary Rules for Emerging Market Economies," IMF Working Papers 02/34, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:02/34
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    References listed on IDEAS

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    More about this item

    Keywords

    Emerging markets; Argentina; Business cycles; Social policy; Monetary policy; Welfare; monetary rules; risk premia; Contents; inflation; equations; inflation targeting; equation; Model Evaluation and Selection; Open Economy Macroeconomics;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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