Monetary Policy Rules for Financially Vulnerable Economies
By Eduardo Morón, Diego Winkelried. Social Science Research Network, 2003
129 citations recorded by the source corpus.
One distinguishable characteristic of emerging market economies is that they are not financially robust. These economies are incapable of smoothing out large external shocks, as sudden capital outflows imply large and abrupt swings in the real exchange rate. Using a small open-economy model, this paper examines alternative monetary policy rules for economies with different degrees of liability dollarization. The paper answers the question of how efficient it is to use inflation targeting under high liability dollarization. Our findings suggest that it might be optimal to follow a nonlinear policy rule that defends the real exchange rate in a financially vulnerable economy.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/53cd316865db7020d86631f4abada7f54007d2b2
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Citations in the corpus
- Inflation Targeting Turns 20 (2010, background): “So dampening exchange rate changes may help stabilize output and inflation (Morón and Winkelried, 2005; and Roger, Restrepo, and Garcia, 2009).”
- Modeling Sterilized Interventions and Balance Sheet Effects of Monetary Policy in a New-Keynesian Framework (2013, unknown): “Several features of emerging markets have been analyzed: financially vulnerable or dollarized economies (Morn and Winkelried 2005; Batini et al. 2007), uncertainty about the policy transmission (Leitemo and Sderstrm 2005), the role of policy credibility and expectations formation (Roger et al.…”