IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Interest Rate Forecasts in Inflation Targeting Open-Economies

  • Alessandro Flamini

    ()

    (Department of Economics and Management, University of Pavia)

Can the choice of the target inflation index in an open-economy affect the central bank ability to forecast the interest rate path? Adopting a New Keynesian set up where the central bank faces real-world model uncertainty, this paper shows that targeting the domestic price index instead of the consumer price index substantially improves the accuracy in the distribution forecast of the interest rate. The policy implication is that adopting the domestic price index may increase the central bank's convenience of publishing the expected interest rate path.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://economia.unipv.it/docs/dipeco/quad/ps/RePEc/pav/demwpp/DEMWP0027.pdf
Download Restriction: no

Paper provided by University of Pavia, Department of Economics and Management in its series DEM Working Papers Series with number 027.

as
in new window

Length: 30 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:pav:demwpp:027
Contact details of provider: Postal: Via S. Felice, 5 - 27100 Pavia
Phone: +39/0382/506208
Fax: +39/0382/304226
Web page: http://epmq.unipv.eu/site/home.html

More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Philippe Bacchetta & Eric van Wincoop, 2001. "A Theory of the Currency Denomination of International Trade," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 01.13, Université de Lausanne, Faculté des HEC, DEEP.
  2. Burstein, Ariel Tomas & Neves, Joao C & Rebelo, Sérgio, 2001. "Distribution Costs and Real Exchange Rate Dynamics During Exchange-Rate-Based Stabilization," CEPR Discussion Papers 2944, C.E.P.R. Discussion Papers.
  3. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper Series WP-01-08, Federal Reserve Bank of Chicago.
  4. Charles Goodhart, 2005. "The Interest Rate Conditioning Assumption," FMG Discussion Papers dp547, Financial Markets Group.
  5. N. Gregory Mankiw & Ricardo Reis, 2002. "What Measure of Inflation Should a Central Bank Target?," Harvard Institute of Economic Research Working Papers 1984, Harvard - Institute of Economic Research.
  6. Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers 638, Stockholm - International Economic Studies.
  7. Alessandro Flamini & Costas Milas, 2009. "Real-time Optimal Monetary Policy with Undistinguishable Model Parameters and Shock Processes Uncertainty," Working Paper Series 38_09, The Rimini Centre for Economic Analysis, revised Jan 2009.
  8. Andrew B. Abel, . "Asset Prices Under Habit Formation and Catching Up With the Jones," Rodney L. White Center for Financial Research Working Papers 01-90, Wharton School Rodney L. White Center for Financial Research.
  9. Michael B. Devereux & Charles Engel & Peter E. Storgaard, 2003. "Endogenous Exchange Rate Pass-through when Nominal Prices are Set in Advance," NBER Working Papers 9543, National Bureau of Economic Research, Inc.
  10. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
  11. Svensson, Lars E.O., 2010. "Inflation Targeting," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 22, pages 1237-1302 Elsevier.
  12. Michael B. Devereux & Charles Engel, 2001. "Endogenous Currency of Price Setting in a Dynamic Open Economy Model," NBER Working Papers 8559, National Bureau of Economic Research, Inc.
  13. Frederic S. Mishkin, 2004. "Can Central Bank Transparency Go Too Far?," NBER Working Papers 10829, National Bureau of Economic Research, Inc.
  14. Ryan Banerjee & Nicoletta Batini, 2003. "UK Consumers’ Habits," Discussion Papers 13, Monetary Policy Committee Unit, Bank of England.
  15. Geraats Petra M., 2005. "Transparency and Reputation: The Publication of Central Bank Forecasts," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-28, February.
  16. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2010. "Optimal monetary policy in open economies," Working Paper Series 2010-13, Federal Reserve Bank of San Francisco.
  17. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09.
  18. Söderström, Ulf, 1999. "Monetary policy with uncertain parameters," SSE/EFI Working Paper Series in Economics and Finance 308, Stockholm School of Economics.
  19. Alan S. Blinder, 2000. "Central-Bank Credibility: Why Do We Care? How Do We Build It?," American Economic Review, American Economic Association, vol. 90(5), pages 1421-1431, December.
  20. Devereux, Michael B. & Yetman, James, 2010. "Price adjustment and exchange rate pass-through," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 181-200, February.
  21. Kaushik Mitra & Seppo Honkapohja, 2004. "Performance of Inflation Targeting Based On Constant Interest Rate Projections," Royal Holloway, University of London: Discussion Papers in Economics 04/15, Department of Economics, Royal Holloway University of London, revised Jul 2004.
  22. Cinzia Alcidi & Alessandro Flamini & Andrea Fracasso, 2011. "Policy Regime Changes, Judgment and Taylor rules in the Greenspan Era," Economica, London School of Economics and Political Science, vol. 78(309), pages 89-107, January.
  23. Takeshi Kimura & Takushi Kurozumi, 2003. "Optimal monetary policy in a micro-founded model with parameter uncertainty," Finance and Economics Discussion Series 2003-67, Board of Governors of the Federal Reserve System (U.S.).
  24. Lossani Marco & Natale Piergiovanna & Tirelli Patrizio, 2001. "Fiscal Policy and Inflation Targets: Does Credibility Matter?," Economia politica, Società editrice il Mulino, issue 3, pages 371-392.
  25. Raf Wouters & Frank Smets, 2005. "Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 161-183.
  26. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  27. Corsetti, Giancarlo & Dedola, Luca, 2005. "A macroeconomic model of international price discrimination," Journal of International Economics, Elsevier, vol. 67(1), pages 129-155, September.
  28. Alessandro Flamini & Andrea Fracasso, 2009. "Household’s Preferences and Monetary Policy Inertia," Working Papers 2009002, The University of Sheffield, Department of Economics, revised Feb 2009.
  29. Belloc Marianna & Federici Daniela & Gandolfo Giancarlo, 2008. "The Euro/Dollar Equilibrium Real Exchange Rate: A Continuous Time Approach," Economia politica, Società editrice il Mulino, issue 2, pages 243-264.
  30. Alessandro Flamini, 2004. "Inflation Targeting and Exchange Rate Pass-Through," IHEID Working Papers 04-2004, Economics Section, The Graduate Institute of International Studies.
  31. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pav:demwpp:027. 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: (Alice Albonico)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.