Policy Rules for Open Economies /
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...
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- Format:
- Elektronisch E-Book
- Sprache:
- Englisch
- Veröffentlicht:
-
Cambridge, Mass.
National Bureau of Economic Research
1998.
Cambridge, Massachusetts : National Bureau of Economic Research, 1998.
- Zusammenfassung:
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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.
- Umfang:
- 1 online resource: illustrations (black and white);
- Anmerkungen:
- October 1998.
- Schlagworte: