Download or read book The Real Exchange Rate in Open economy Taylor Rules written by Richard T. Froyen and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Taylor Rules and the Deutschmark dollar Real Exchange Rate written by Charles Engel and published by . This book was released on 2004 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: "We explore the link between an interest rate rule for monetary policy and the behavior of the real exchange rate. The interest rate rule, in conjunction with some standard assumptions, implies that the deviation of the real exchange rate from its steady state depends on the present value of a weighted sum of inflation and output gap differentials. The weights are functions of the parameters of the interest rate rule. An initial look at German data yields some support for the model"--National Bureau of Economic Research web site.
Download or read book Taylor Rule Reaction Coefficients and Real Exchange Rate Persistence written by Bernd Kempa and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent literature has established a link between the persistence of real exchange rates and the degree of inertia in Taylor rule monetary policy reactions functions. This paper provides a different view on this link by investigating how the size of Taylor rule reaction coefficients impacts the adjustment dynamics of the real exchange rate. Within a stylized sticky-price open-economy macro model, it is demonstrated that a stronger interest rate reaction to inflation in the Taylor rule raises the convergence speed of the real exchange rate. Conversely, raising the coefficient on the output gap or attending to the exchange rate in an open-economy version of the Taylor rule slows down real exchange rate adjustment. In all cases, more rapid convergence comes at the cost of stronger initial real exchange rate misalignments in the wake of monetary policy shocks.
Download or read book Asset Prices and Monetary Policy written by John Y. Campbell and published by University of Chicago Press. This book was released on 2008-11-15 with total page 444 pages. Available in PDF, EPUB and Kindle. Book excerpt: Economic growth, low inflation, and financial stability are among the most important goals of policy makers, and central banks such as the Federal Reserve are key institutions for achieving these goals. In Asset Prices and Monetary Policy, leading scholars and practitioners probe the interaction of central banks, asset markets, and the general economy to forge a new understanding of the challenges facing policy makers as they manage an increasingly complex economic system. The contributors examine how central bankers determine their policy prescriptions with reference to the fluctuating housing market, the balance of debt and credit, changing beliefs of investors, the level of commodity prices, and other factors. At a time when the public has never been more involved in stocks, retirement funds, and real estate investment, this insightful book will be useful to all those concerned with the current state of the economy.
Download or read book Monetary Policy Rules written by John B. Taylor and published by University of Chicago Press. This book was released on 2007-12-01 with total page 460 pages. Available in PDF, EPUB and Kindle. Book excerpt: This timely volume presents the latest thinking on the monetary policy rules and seeks to determine just what types of rules and policy guidelines function best. A unique cooperative research effort that allowed contributors to evaluate different policy rules using their own specific approaches, this collection presents their striking findings on the potential response of interest rates to an array of variables, including alterations in the rates of inflation, unemployment, and exchange. Monetary Policy Rules illustrates that simple policy rules are more robust and more efficient than complex rules with multiple variables. A state-of-the-art appraisal of the fundamental issues facing the Federal Reserve Board and other central banks, Monetary Policy Rules is essential reading for economic analysts and policymakers alike.
Download or read book Does Inflation Targeting Matter written by Laurence M. Ball and published by . This book was released on 2003 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper asks whether inflation targeting improves economic performance, as measured by the behavior of inflation, output, and interest rates. We compare seven OECD countries that adopted inflation targeting in the early 1990s to thirteen that did not. After the early 90s, performance improved along many dimensions for both the targeting countries and the non-targeters. In some cases the targeters improved by more; for example, average inflation fell by a larger amount. However, these differences are explained by the facts that targeters performed worse than non-targeters before the early 90s, and there is regression to the mean. Once one controls for regression to the mean, there is no evidence that inflation targeting improves performance.
Download or read book Inflation Targeting and Exchange Rate Management In Less Developed Countries written by Mr.Marco Airaudo and published by International Monetary Fund. This book was released on 2016-03-08 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.
Download or read book Implementation of Taylor Type Rules in Nascent Money and Capital Markets Under Managed Exchange Rates written by Anthony Birchwood and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the practical use of Taylor-type rules in Trinidad and Tobago, which is in the process of implementing market based monetary policy and seeks to implement flexible inflation targeting in the presence of a managed exchange rate. This is motivated by the idea that normative Taylor rules can be shaped by the practical experience of developing countries. We find that the inflation - exchange rate nexus is strong, hence the country may be unwilling to allow the exchange rate to float freely. We contend that despite weak market development the Taylor rule can still be applied as the central bank is able to use moral suasion to achieve full pass through of the policy rate to the market rate. Our evidence rejects Galí and Monacelli's (2005) argument that the optimal monetary policy rule for the open economy is isomorphic for a closed economy. Rather, our evidence suggests that the rule for the open economy allows for lower variability when the rule is augmented by the real exchange rate as in Taylor (2001). We also reject Galí and Monacelli's (2005) hypothesis that domestic inflation is optimal for inclusion in the Taylor-type rule. Instead we find that core CPI inflation leads to lower variability. Additionally, our evidence suggests that the monetary rule, when applied to Trinidad and Tobago, is accommodating to the US Federal Reserve rate. Further, we expand the work of Martin and Milas (2010) which considered the pass through of the policy rate to the interbank rate in the presence of risk and liquidity. By extending the transmission to the market lending rate, we are able to go beyond those disruptive factors by considering excess liquidity and spillovers of international economic disturbances. We found that these shocks are significant for Trinidad and Tobago, but it is not significant enough to disrupt the pass through. As a result, full pass through was robust to the presence of these disruptive factors.
Download or read book Monetary Policy Rules and the Exchange Rate written by Gianluca Benigno and published by . This book was released on 2001 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Interest Rate Rules Endogenous Cycles and Chaotic Dynamics in Open Economies written by Mr.Marco Airaudo and published by International Monetary Fund. This book was released on 2012-05-01 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present an extensive analysis of the consequences for global equilibrium determinacy in flexible-price open economies of implementing active interest rate rules, i.e., monetary rules where the nominal interest rate responds more than proportionally to inflation. We show that conditions under which these rules generate aggregate instability by inducing liquidity traps, endogenous cycles, and chaotic dynamics depend on specific characteristics of open economies. In particular, rules that respond to expected future inflation are more prone to induce endogenous cyclical and chaotic dynamics the more open the economy to trade.
Download or read book Exchange Rate Economics written by Ronald MacDonald and published by Routledge. This book was released on 2005 with total page 334 pages. Available in PDF, EPUB and Kindle. Book excerpt: ''In summary, the book is valuable as a textbook both at the advanced undergraduate level and at the graduate level. It is also very useful for the economist who wants to be brought up-to-date on theoretical and empirical research on exchange rate behaviour.'' ""Journal of International Economics""
Download or read book Policy Rules for Open Economies written by Laurence Ball and published by . This book was released on 1998 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the choice of a monetary-policy rule in a simple macroeconomic model. In a closed economy, the optimal policy is a output and inflation. In an open economy, the optimal rule changes in two ways. First, the policy instrument is a Conditions Index the exchange rate. Second, on the right side of the rule, inflation is replaced by filters out the transitory effects of exchange-rate movements. The model also implies that pure inflation targeting is dangerous in an open economy, because it creates large fluctuations in exchange rates and output. Targeting long-run inflation avoids this problem and produces a close approximation to the optimal instrument rule.
Download or read book Changing Monetary Policy Rules Learning and Real Exchange Rate Dynamics written by Nelson Chung Mark and published by . This book was released on 2005 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: "When central banks set nominal interest rates according to an interest rate reaction function, such as the Taylor rule, and the exchange rate is priced by uncovered interest parity, the real exchange rate is determined by expected inflation differentials and output gap differentials. In this paper I examine the implications of these Taylor-rule fundamentals for real exchange rate determination in an environment where market participants are ignorant of the numerical values of the model's coefficients but attempt to acquire that information using least-squares learning rules. I find evidence that this simple learning environment provides a plausible framework for understanding real dollar--DM exchange rate dynamics from 1976 to 2003. The least-squares learning path for the real exchange rate implied by inflation and output gap data exhibits the real depreciation of the 70s, the great appreciation (1979.4-1985.1) and the subsequent great depreciation (1985.2-1991.1) observed in the data. An emphasis on Taylor-rule fundamentals may provide a resolution to the exchange rate disconnect puzzle"--National Bureau of Economic Research web site.
Download or read book Foreign Exchange Intervention as a Monetary Policy Instrument written by Felix Hüfner and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 180 pages. Available in PDF, EPUB and Kindle. Book excerpt: Foreign exchange intervention is frequently being used by central banks in countries which have a floating exchange rate. Most theoretical monetary policy models, however, do not take this phenomenon into account. This book contributes to close this gap between theory and practice by interpreting foreign exchange intervention as an additional monetary policy instrument for inflation targeting central banks. In-depth empirical analyses of the foreign exchange operations and interest rate policy of five inflation targeting countries (Australia, Canada, New Zealand, Sweden and the United Kingdom) demonstrate how foreign exchange intervention is used in practice.
Download or read book Monetary Policy Rules for an Open Economy written by Nicoletta Batini and published by . This book was released on 2005 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The most popular simple rule for the interest rate, due to Taylor, is meant to inform monetary policy in closed economies. On the other hand, its main open-economy alternative, Ball's rule based on a monetary conditions index (MCI), may perform poorly in the face of specific types of exchange rate shocks, and thus cannot offer guidance for the day-to-day conduct of monetary policy. In this paper, a comprehensive set of simple monetary policy rules (including the MCI-based and Taylor versions) is specified and evaluated, all suitable for small open economies in general, and for the United Kingdom in particular. The asymptotic properties of a two-sector open-economy dynamic stochastic general equilibrium model calibrated on UK data are compared under the different rules. It is found that an inflation-forecast-based rule (IFB), i.e., one that reacts to deviations of expected inflation from target, performs well. Adding a separate response to the level of the real exchange rate (contemporaneous and lagged) appears to reduce the difference in adjustment between output gaps in the two sectors of the economy, but the improvement is only marginal. Importantly, an IFB rule, with or without exchange rate adjustment, appears robust to different shocks, in contrast to naive or Ball's MCI-based rules.
Download or read book Taylor Rules and the Deutschmark Dollar Real Exchange Rate written by Charles M. Engel and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore the link between an interest rate rule for monetary policy and the behavior of the real exchange rate. The interest rate rule, in conjunction with some standard assumptions, implies that the deviation of the real exchange rate from its steady state depends on the present value of a weighted sum of inflation and output gap differentials. The weights are functions of the parameters of the interest rate rule. An initial look at German data yields some support for the model.
Download or read book NBER Macroeconomics Annual 2007 written by Daron Acemoglu and published by . This book was released on 2008-03 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The NBER Macroeconomics Annual provides a forum for important debates in contemporary macroeconomics and major developments in the theory of macroeconomic analysis and policy that include leading economists from a variety of fields. The papers and accompanying discussions in NBER Macroeconomics Annual 2007 address exchange-rate models; implications of credit market frictions; cyclical budgetary policy and economic growth; the impacts of shocks to government spending on consumption, real wages, and employment; dynamic macroeconomic models; and the role of cyclical entry of new firms and products on the nature of business-cycle fluctuations and on the effects of monetary policy.
