From Inflation to Exchange Rate Targeting: Estimating the Stabilization Effects
This paper attempts to estimate possible losses in macroeconomic stabilization due to a move from inflation to exchange rate targeting on an example of the Czech Republic. The authors use an estimated New Keynesian policy model, general inflation and exchange rate targeting rules, and representative central bank loss functions to carry out such estimations. The authors find that for the Czech Republic moving from the historically applied inflation targeting to optimized exchange rate targeting should not involve any significant losses in macroeconomic stabilization. However, the Czech National Bank could improve its stabilization outcomes while remaining an inflation targeter. This requires the Czech National Bank to respond stronger to increasing expected future inflation and be less concerned about an opening output gap when adjusting its policy rate. Moving then from such optimized inflation targeting to optimized exchange rate targeting can result in significant losses in economic stabilization in the magnitude of 0.4 to 2 percentage points of GDP growth.
|Date of creation:||Sep 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: https://mpra.ub.uni-muenchen.de
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.:
- Seonghoon Cho & Antonio Moreno, 2005.
"A Small-Sample Study of the New-Keynesian Macro Model,"
Faculty Working Papers
03/05, School of Economics and Business Administration, University of Navarra.
- Cho, Seonghoon & Moreno, Antonio, 2006. "A Small-Sample Study of the New-Keynesian Macro Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1461-1481, September.
- Clarida, Richard & Galí, Jordi & Gertler, Mark, 2002.
"A Simple Framework for International Monetary Policy Analysis,"
CEPR Discussion Papers
3355, C.E.P.R. Discussion Papers.
- Clarida, Richard & Gali, Jordi & Gertler, Mark, 2002. "A simple framework for international monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 879-904, July.
- Richard Clarida & Jordi Gali & Mark Gertler, 2002. "A Simple Framework for International Monetary Policy Analysis," NBER Working Papers 8870, National Bureau of Economic Research, Inc.
- Bruha, Jan & Podpiera, Jirí & Polák, Stanislav, 2010.
"The convergence dynamics of a transition economy: The case of the Czech Republic,"
Elsevier, vol. 27(1), pages 116-124, January.
- Jan Bruha & Jiri Podpiera & Stanislav PolÃ¡k, 2007. "The Convergence Dynamics of a Transition Economy; The Case of the Czech Republic," IMF Working Papers 07/116, International Monetary Fund.
- Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
- Philippe Karam & Douglas Laxton & David Rose & Natalia Tamirisa, 2008. "The Macroeconomic Costs and Benefits of Adopting the Euro," IMF Staff Papers, Palgrave Macmillan, vol. 55(2), pages 339-355, June.
- Daniel Buncic & Martin Melecky, 2008.
"An Estimated New Keynesian Policy Model for Australia,"
The Economic Record,
The Economic Society of Australia, vol. 84(264), pages 1-16, 03.
- Martin Melecky & Daniel Buncic, 2005. "An Estimated, New Keynesian Policy Model for Australia," Macroeconomics 0511026, EconWPA.
- Buncic, Daniel & Melecky, Martin, 2007. "An estimated New Keynesian policy model for Australia," MPRA Paper 4138, University Library of Munich, Germany.
- Paolo Giordani, 2004. "Evaluating New-Keynesian Models of a Small Open Economy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 713-733, 09.
- Ferreira, Alex Luiz & Leon-Ledesma, Miguel A., 2007.
"Does the real interest parity hypothesis hold? Evidence for developed and emerging markets,"
Journal of International Money and Finance,
Elsevier, vol. 26(3), pages 364-382, April.
- Alex Luiz Ferreira & Miguel León-Ledesma, 2003. "Does the Real Interest Parity Hypothesis Hold? Evidence for Developed and Emerging Markets," Studies in Economics 0301, School of Economics, University of Kent.
- FERREIRA Alex Luiz & LEON-LEDESMA Miguel A., . "Does the Real Interest Parity Hypothesis Hold? Evidence for Developed and Emerging Markets," EcoMod2003 330700053, EcoMod.
- Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Open versus Closed Economies: An Integrated Approach," American Economic Review, American Economic Association, vol. 91(2), pages 248-252, May.
- Hnatkovska, Viktoria & Loayza, Norman, 2004. "Volatility and growth," Policy Research Working Paper Series 3184, The World Bank.
- Sungbae An & Frank Schorfheide, 2006.
"Bayesian analysis of DSGE models,"
06-5, Federal Reserve Bank of Philadelphia.
- SÃ²nia MuÃ±oz & CÃ©line Allard, 2008. "Challenges to Monetary Policy in the Czech Republic; L3794An Integrated Monetary and Fiscal Analysis," IMF Working Papers 08/72, International Monetary Fund.
- Bennett T McCallum & Edward Nelson, 2001.
"Monetary Policy for an Open Economy: An Alternative Framework with Optimising Agents and Sticky Prices,"
05, Monetary Policy Committee Unit, Bank of England.
- McCallum, Bennett T & Nelson, Edward, 2000. "Monetary Policy for an Open Economy: An Alternative Framework with Optimizing Agents and Sticky Prices," Oxford Review of Economic Policy, Oxford University Press, vol. 16(4), pages 74-91, Winter.
- Bennett T. McCallum & Edward Nelson, 2001. "Monetary Policy for an Open Economy: An Alternative Framework with Optimizing Agents and Sticky Prices," NBER Working Papers 8175, National Bureau of Economic Research, Inc.
- McCallum, Bennett T & Nelson, Edward, 2001. "Monetary Policy for an Open Economy: An Alternative Framework with Optimizing Agents and Sticky Prices," CEPR Discussion Papers 2756, C.E.P.R. Discussion Papers.
- Sims, Christopher A, 2002.
"Solving Linear Rational Expectations Models,"
Society for Computational Economics, vol. 20(1-2), pages 1-20, October.
- Christopher Sims, 2001. "Matlab Code for Solving Linear Rational Expectations Models," QM&RBC Codes 11, Quantitative Macroeconomics & Real Business Cycles.
- Glenn D. Rudebusch, 1999.
"Is the Fed too timid? Monetary policy in an uncertain world,"
Working Papers in Applied Economic Theory
99-05, Federal Reserve Bank of San Francisco.
- Glenn D. Rudebusch, 2001. "Is The Fed Too Timid? Monetary Policy In An Uncertain World," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 203-217, May.
- P. A. Tinsley, 1998. "Short rate expectations, term premiums, and central bank use of derivatives to reduce policy uncertainty," Finance and Economics Discussion Series 1999-14, Board of Governors of the Federal Reserve System (U.S.).
- Benigno, Gianluca & Benigno, Pierpaolo & Ghironi, Fabio, 2007.
"Interest rate rules for fixed exchange rate regimes,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 31(7), pages 2196-2211, July.
- Gianluca Benigno & Pierpaolo Benigno & Fabio Ghironi, 2000. "Interest Rate Rules for Fixed Exchange Rate Regimes," Boston College Working Papers in Economics 468, Boston College Department of Economics, revised 13 Oct 2003.
- Jan Bruha & Jiri Podpiera & Stanislav Polak, 2007. "The Convergence of a Transition Economy: The Case of the Czech Republic," Working Papers 2007/3, Czech National Bank, Research Department.
- Menzie D. Chinn & Guy Meredith, 2004. "Monetary Policy and Long-Horizon Uncovered Interest Parity," IMF Staff Papers, Palgrave Macmillan, vol. 51(3), pages 409-430, November.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:10844. 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: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.