What Price Index Should Central Banks Target? An Open Economy Analysis

2021 ◽  
pp. 103554
Author(s):  
Misaki Matsumura
Keyword(s):  
Open Economy ◽  
Price Index ◽  
Central Banks ◽  
Economy Analysis

scholarly journals Exchange Rate Pass Through in a Small Open Economy: A case study of West African Monetary Zone

2013 ◽  
Vol 9 (4) ◽  
pp. 275-290
Author(s):  
Rahman olanrewaju Raji
Keyword(s):  
Exchange Rate ◽  
Open Economy ◽  
Price Index ◽  
Time Series Data ◽  
Consumer Price Index ◽  
Import Price ◽  
Series Data ◽  
Import Prices ◽  
Pass Through ◽  
Exchange Rate Pass Through

The  study investigated the magnitude of exchange rate pass through to import prices and domestic prices    (consumer price index) in WAMZ economy using quarterly time-series data between 2000 and 2010 with the aids of Vector autoregressive (VAR) modeling technique supported with Johansen co-integration approach cross country analysis comprising of Gambia, Ghana, Nigeria and Sierra-Leone. The study discovered that transmission of exchange rate to import prices is more when compared with consumer price in the zone while the contributions of exchange rate to import price are not less 13 percent at average in entire zone. Consumer price index was explained by exchange rate pass through with an average of 26 percent in the zone where the pass through to consumer price is less than two percent in Ghanaian economy. The Taylor (2000) hypothesis was observed in the study where Ghana and Nigeria are the outlier economies while Nigeria established a positive relationship between interest rate volatility and exchange rate pass through to import prices.

scholarly journals Biofuel Subsidies: An Open Economy Analysis

2009 ◽  
Author(s):  
Subhayu Bandyopadhyay ◽  
Sumon Bhaumik ◽  
Howard J. Wall
Keyword(s):  
Open Economy ◽  
Economy Analysis

scholarly journals NEUTRAL VALUE OF MONEY IN THE PRACTICE OF MONETARY REGULATION

2021 ◽  
Vol 2021 (11) ◽  
pp. 3-22
Author(s):  
Bohdan DANYLYSHYN ◽  
◽  
Ivan BOGDAN ◽  
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Open Economy ◽  
Methodological Approach ◽  
Small Open Economy ◽  
Central Banks ◽  
Interest Rate Policy ◽  
Advantages And Disadvantages ◽  
Potential Gdp ◽  
Value Of Money

The issue of estimating the level of neutral interest rates is a central issue for theoretical foundation of decision-making on interest rate policy in the practice of central banks. As a result of studying theoretical sources, research materials of international organizations and central banks, the factors of the neutral interest rate are systematized, the methods of its estimation are generalized, their advantages and disadvantages are revealed. Factors of the neutral rate are systematized according to the principle of their influence on the demand or supply of money in the economy. It has been established that there is no single generally accepted theoretical and methodological approach to determining the neutral rate in modern practice. A wide variation of methods with varying degrees of reliance on a theoretical basis (from purely mathematical filtration techniques to complex macroeconomic general equilibrium models) extends a field for new research. It is found that a key issue in neutral rate estimating models is the formalization of the relationship between the effects of external and internal factors, which is especially important for countries with a small open economy. Attention is paid to the method for estimating the neutral rate based on the rule of uncovered interest parity, which is used in the national practice of monetary regulation. Systemic shortcomings of this method are revealed on the basis of research of its theoretical bases and results of practical application in the conditions of the Ukrainian economy. The expediency of introducing into the practice of monetary regulation in Ukraine of alternative methodological toolkit for estimating the neutral rate based on the achievements of T. Laubach and J. Williams with adaptation to the open economy settings is justified, which would enhance the role of domestic factors, in particular changes in potential GDP and savings as important determinants of neutral value of money.

scholarly journals Should monetary policy lean against the wind in a small-open economy? Revisiting the Tinbergen rule

2021 ◽  
Author(s):  
Rogelio De la Peña
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Monopolistic Competition ◽  
Financial Frictions ◽  
Small Open Economy ◽  
Central Banks ◽  
Welfare Cost ◽  
Policy Regimes ◽  
Policy Objectives ◽  
Single Instrument

It has been debated whether monetary policy should lean against the wind, i.e., if central banks should also respond to the build-up of financial imbalances. I contribute to the debate by showing that targeting the two policy objectives with a single instrument is more costly for a small-open economy than for a closed one. To this end, I develop a small-open economy DSGE model with the Bernanke-Gertler-Gilchrist financial accelerator that features financial frictions and monopolistic competition in goods markets. I then estimate this model for Mexico to explore the policy regimes yielding the lowest welfare cost. My main finding is that the Tinbergen rule is alive and well. In addition, my model is useful to gauge macroprudential measures effectiveness when discriminating against foreign liabilities.

Delegating Optimal Monetary Policy Inertia in a Small-Open Economy

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Daisuke Ida ◽  
Mitsuhiro Okano
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Inflation Targeting ◽  
Small Open Economy ◽  
Central Banks ◽  
New Keynesian ◽  
Closed Economy ◽  
Optimal Monetary Policy ◽  
Nk Model ◽  
Exchange Rate Targeting

AbstractThis paper explores the delegation of several targeting regimes in a small open new Keynesian (NK) model and examines how central banks overcome stabilization bias in a small open NK model. Results indicate that both speed limit and real exchange rate targeting can carry the isomorphic properties of optimal monetary policy over to the closed economy. In addition, neither nominal income growth targeting nor CPI inflation targeting replicates a commitment policy. These findings provide new implications for optimal monetary policy in an open economy.

scholarly journals CAUTION OR ACTIVISM? MONETARY POLICY STRATEGIES IN AN OPEN ECONOMY

2007 ◽  
Vol 11 (4) ◽  
pp. 519-541 ◽  
Author(s):  
MARTIN ELLISON ◽  
LUCIO SARNO ◽  
JOUKO VILMUNEN
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Open Economy ◽  
Optimal Policy ◽  
Central Banks ◽  
Economy Model ◽  
The Real ◽  
Policy Strategies

We examine optimal policy in an open-economy model with uncertainty and learning, where monetary policy actions affect the economy through the real exchange rate channel. Our results show that the degree of caution or activism in optimal policy depends on whether central banks are in coordinated or uncoordinated equilibrium. If central banks coordinate their policy actions then activism is optimal. In contrast, if there is no coordination, caution prevails. In the latter case caution is optimal because it helps central banks to avoid exposing themselves to manipulative actions by other central banks.

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