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Monetary policy conduct: A hybrid framework

  • Douch, Mohamed
  • Essadam, Naceur

This paper compares the capability of interest rate rules, namely, inflation targeting (IT), price-level targeting (PT) and a combination of the two regime in a hybrid rule (HT) to improve social welfare in a small-open-economy, DSGE-based, New-Keynesian model. Allowing for some inflation inertia, we develop a small-open-economy version of the Calvo sticky-price model to investigate the relative ability of IT, PT and HT to minimize the variability in domestic ination and the output gap. Our analyses show that hybrid targeting outperforms other specifications and produces quantitatively good results, compared to those regimes that target only price levels or inflation rates.

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File URL: http://mpra.ub.uni-muenchen.de/20715/1/MPRA_paper_20715.pdf
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File URL: http://mpra.ub.uni-muenchen.de/46547/1/MPRA_paper_46547.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20715.

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Date of creation: Nov 2008
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Handle: RePEc:pra:mprapa:20715
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