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Stabilizing Inflation in Iceland

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  • Ms. Keiko Honjo
  • Mr. Benjamin L Hunt

Abstract

This paper provides some empirical estimates on how tightly is it feasible to control inflation in a very small open economy such as Iceland. Estimated macroeconomic models of Canada, Iceland, New Zealand, the United Kingdom, and the United States are used to derive efficient monetary policy frontiers that trace out the locus of the lowest combinations of inflation and output variability that are achievable under a range of alternative monetary policy rules. These frontiers illustrate that inflation stabilization is more challenging in Iceland than in other industrial countries primarily because of the relative magnitudes of the economic shocks.

Suggested Citation

  • Ms. Keiko Honjo & Mr. Benjamin L Hunt, 2006. "Stabilizing Inflation in Iceland," IMF Working Papers 2006/262, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2006/262
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    References listed on IDEAS

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    Cited by:

    1. Francis Breedon & Thórarinn Pétursson & Andrew Rose, 2012. "Exchange Rate Policy in Small Rich Economies," Open Economies Review, Springer, vol. 23(3), pages 421-445, July.
    2. Carlos Garcia & Pablo Gonzalez & Antonio Moncado, 2010. "Proyecciones Macroeconómicas en Chile: Una Aproximación Bayesiana," ILADES-UAH Working Papers inv262, Universidad Alberto Hurtado/School of Economics and Business.
    3. Mr. Anthony M Annett, 2007. "Toward a Robust Fiscal Framework for Iceland: Motivation and Practical Suggestions," IMF Working Papers 2007/235, International Monetary Fund.
    4. Howden, David, 2013. "The Rise and Fall of the Icelandic Economy," MPRA Paper 79603, University Library of Munich, Germany.
    5. Carlos J. García & Pablo González M. & Antonio Moncado S., 2013. "Macroeconomic Forecasting in Chile: a Structural Bayesian Approach," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 16(1), pages 24-63, April.
    6. Ms. Keiko Honjo, 2007. "The Golden Rule and the Economic Cycles," IMF Working Papers 2007/199, International Monetary Fund.
    7. Á sgeir Daníelsson, 2020. "Volatility of national account data for Iceland and other OECD countries," Economics wp83, Department of Economics, Central bank of Iceland.

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    Keywords

    WP; inflation-output variability trade-off;

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