Degree of Openness and Inflation Targeting Policy: Model of a Small Open Economy
In this paper, we present the dynamics of a Neo-Keynesian model applied to a small open economy in order to study the impact of openness on the choice of the appropriate inflation targeting policy. In the event of exogenous shocks, we can use either a CPI inflation targeting policy or a domestic inflation targeting policy. We conclude that there is a relation between the degree of openness of the economy and the typeÂ of infation targeting policy. By considering a domestic shock, when the economy is more open towards outside, we may find that the adoption of CPI inflation targeting is benefical. Whereas in the event of foreign shock, the optimal rule would be the domestic inflation targeting. By considering the criteria of social welfare, we find that for an important degree of openness, the policy of CPI inflation targeting remains the optimal monetary rule.
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.infer-research.net/|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Svensson, Lars E. O., 2000.
"Open-economy inflation targeting,"
Journal of International Economics,
Elsevier, vol. 50(1), pages 155-183, February.
- Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers.
- Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers 638, Stockholm - International Economic Studies.
- Lars E. O. Svensson, 2000. "Open-Economy Inflation Targeting," NBER Working Papers 6545, National Bureau of Economic Research, Inc.
- Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers 638, Stockholm University, Institute for International Economic Studies.
- Ben S. Bernanke & Frederic S. Mishkin, 1997.
"Inflation Targeting: A New Framework for Monetary Policy?,"
Journal of Economic Perspectives,
American Economic Association, vol. 11(2), pages 97-116, Spring.
- Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," NBER Working Papers 5893, National Bureau of Economic Research, Inc.
- Adolfson, Malin, 2001.
"Monetary Policy with Incomplete Exchange Rate Pass-Through,"
Working Paper Series
127, Sveriges Riksbank (Central Bank of Sweden).
- Adolfson, Malin, 2001. "Monetary Policy with Incomplete Exchange Rate Pass-Through," SSE/EFI Working Paper Series in Economics and Finance 476, Stockholm School of Economics.
- Reinhart, Carmen & Calvo, Guillermo, 2001.
"Fixing for your life,"
13873, University Library of Munich, Germany.
- Christopher Martin & Michael Arghyrou & Costas Milas, 2004. "Nonlinear inflation dynamics: evidence from the UK," Money Macro and Finance (MMF) Research Group Conference 2003 59, Money Macro and Finance Research Group.
- Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
- Sanchez-Fung, Jose R, 2003.
"Inflation targeting and monetary analysis in Chile and Mexico,"
Royal Economic Society Annual Conference 2003
179, Royal Economic Society.
- Jose Sanchez-Fung, 2004. "Inflation targeting and monetary analysis in Chile and Mexico," Money Macro and Finance (MMF) Research Group Conference 2003 82, Money Macro and Finance Research Group.
- Carare, Alina & Stone, Mark R., 2006.
"Inflation targeting regimes,"
European Economic Review,
Elsevier, vol. 50(5), pages 1297-1315, July.
- Eric Parrado, 2004. "Inflation Targeting and Exchange Rate Rules in an Open Economy," IMF Working Papers 04/21, International Monetary Fund.
- Jeffery D. Amato & Stefan Gerlach, 2001.
"Inflation Targeting in Emerging Market and Transition Economies: Lessons after a Decade,"
132001, Hong Kong Institute for Monetary Research.
- Amato, Jeffery D. & Gerlach, Stefan, 2002. "Inflation targeting in emerging market and transition economies: Lessons after a decade," European Economic Review, Elsevier, vol. 46(4-5), pages 781-790, May.
- Amato, Jeffery D. & Gerlach, Stefan, 2001. "Inflation Targeting in Emerging Market and Transition Economies: Lessons After a Decade," CEPR Discussion Papers 3074, C.E.P.R. Discussion Papers.
- David Romer, 1991.
"Openness and inflation: theory and evidence,"
Federal Reserve Bank of San Francisco, issue Nov.
- Paul Conway & Aaron Drew & Ben Hunt & Alasdair Scott, 1998. "Exchange rate effects and inflation targeting in a small open economy: a stochastic analysis using FPS," Reserve Bank of New Zealand Discussion Paper Series G99/4, Reserve Bank of New Zealand.
- Corrinne Ho & Robert N. McCauley, 2003. "Living with flexible exchange rates: issues and recent experience in inflation targeting emerging market economies," BIS Working Papers 130, Bank for International Settlements.
- Edwin M. Truman, 2003. "Inflation Targeting in the World Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 346.
- Marc Giannoni & Michael Woodford, 2004.
"Optimal Inflation-Targeting Rules,"
in: The Inflation-Targeting Debate, pages 93-172
National Bureau of Economic Research, Inc.
- Jean-Guillaume Sahuc & Stéphane Moyen, 2007.
"Le modèle d’équilibre général de la « nouvelle synthèse » : quelles hypothèses retenir ?,"
Documents de recherche
07-06, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
- Stéphane Moyen & Jean-Guillaume Sahuc, 2008. "Le modèle d'équilibre général de la « Nouvelle synthèse » : quelles hypothèses retenir ?," Économie et Prévision, Programme National Persée, vol. 183(2), pages 15-34.
- Calvo, Guillermo A, 2001.
"Capital Markets and the Exchange Rate with Special Reference to the Dollarization Debate in Latin America,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 33(2), pages 312-34, May.
- Guillermo A. Calvo, 2001. "Capital markets and the exchange rate with special reference to the dollarization debate in Latin America," Proceedings, Federal Reserve Bank of Cleveland, pages 312-338.
- Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Closed versus Open Economies: An Integrated Approach," NBER Working Papers 8604, National Bureau of Economic Research, Inc.
- Flamini, Alessandro, 2007.
"Inflation targeting and exchange rate pass-through,"
Journal of International Money and Finance,
Elsevier, vol. 26(7), pages 1113-1150, November.
- Alessandro Flamini, 2004. "Inflation Targeting and Exchange Rate Pass-Through," IHEID Working Papers 04-2004, Economics Section, The Graduate Institute of International Studies.
- Jordi Gali & Tommaso Monacelli, 1999. "Optimal Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Boston College Working Papers in Economics 438, Boston College Department of Economics, revised 15 Nov 1999.
When requesting a correction, please mention this item's handle: RePEc:inf:wpaper:2010.2. 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: (Christian Richter)
If references are entirely missing, you can add them using this form.