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Journal articles on the topic 'Inflation targeting rules'

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Published: 4 June 2021

Last updated: 1 February 2022

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1

Lai, Ching-Chong, and Chi-Ting Chin. "MONETARY RULES AND ENDOGENOUS GROWTH IN AN OPEN ECONOMY." Macroeconomic Dynamics 17, no. 2 (April 27, 2012): 431–63. http://dx.doi.org/10.1017/s1365100511000277.

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This paper develops a monetary endogenous growth model for an open economy. The salient feature of the model is that it is able to deal with various monetary policy rules, including money growth rate targeting, inflation rate targeting, and nominal income growth rate targeting. It is found that a rise in the pegged rate may either increase or decrease the balanced-growth rate under regimes of both money growth rate targeting and nominal income growth targeting. However, a rise in the pegged rate is sure to depress the balanced-growth rate under the regime of inflation rate targeting. It is also found that money growth rate targeting is fundamentally equivalent to nominal income growth rate targeting if a specific restriction is imposed, and inflation rate targeting is not qualitatively equivalent to either money growth rate targeting or nominal income growth rate targeting.

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2

Taguchi, Hiroyuki, and Ganbayar Gunbileg. "Monetary Policy Rule and Taylor Principle in Mongolia: GMM and DSGE Approaches." International Journal of Financial Studies 8, no. 4 (November 16, 2020): 71. http://dx.doi.org/10.3390/ijfs8040071.

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This article aims to examine the monetary policy rule under an inflation targeting in Mongolia with a focus on its conformity to the Taylor principle, through two kinds of approaches: a monetary policy reaction function by the generalized-method-of-moments (GMM) estimation and a New Keynesian dynamic stochastic general equilibrium (DSGE) model with a small open economy version by the Bayesian estimation. The main findings are summarized as follows. First, the GMM estimation identified an inflation-responsive rule fulfilling the Taylor principle in the recent phase of the Mongolian inflation targeting. Second, the DSGE-model estimation endorsed the GMM estimation by producing a consistent outcome on the Mongolian monetary policy rule. Third, the Mongolian rule was estimated to have a weaker response to inflation than the rules of the other emerging Asian adopters of an inflation targeting.

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3

Neuenkirch, Matthias, and Peter Tillmann. "Inflation targeting, credibility, and non-linear Taylor rules." Journal of International Money and Finance 41 (March 2014): 30–45. http://dx.doi.org/10.1016/j.jimonfin.2013.10.006.

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4

Leitemo, Kai. "Inflation-targeting rules: History-dependent or forward-looking?" Economics Letters 100, no. 2 (August 2008): 267–70. http://dx.doi.org/10.1016/j.econlet.2008.02.006.

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5

Baxa, Jaromír, Roman Horváth, and Bořek Vašíček. "HOW DOES MONETARY POLICY CHANGE? EVIDENCE ON INFLATION-TARGETING COUNTRIES." Macroeconomic Dynamics 18, no. 3 (March 26, 2013): 593–630. http://dx.doi.org/10.1017/s1365100512000545.

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We examine the evolution of monetary policy rules in a group of inflation-targeting countries (Australia, Canada, New Zealand, Sweden, and the United Kingdom), applying a moment-based estimator in a time-varying parameter model with endogenous regressors. From this novel flexible framework, our main findings are threefold. First, monetary policy rules change gradually, pointing to the importance of applying a time-varying estimation framework. Second, the interest-rate smoothing parameter is much lower than typically reported by previous time-invariant estimates of policy rules. External factors matter for all countries, although the importance of the exchange rate diminishes after the adoption of inflation targeting. Third, the response of interest rates to inflation is particularly strong during periods when central bankers want to break a record of high inflation, such as in the United Kingdom or Australia at the beginning of the 1980s. Contrary to common perceptions, the response becomes less aggressive after the adoption of inflation targeting, suggesting a positive anchoring effect of this regime on inflation expectations. This result is supported by our finding that inflation persistence typically decreased after the adoption of inflation targeting.

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6

Kuncoro, Haryo. "Does the Credible Fiscal Policy Support the Prices Stabilization?" Review of Economic Perspectives 15, no. 2 (June 1, 2015): 137–56. http://dx.doi.org/10.1515/revecp-2015-0014.

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Abstract This paper aims at analyzing the co-movement between fiscal policy and monetary policy rules in the context of price stabilization. More specifically, we observe the potential impact of fiscal policy credibility on the price stabilization in the inflation targeting framework. Motivated by the fact that empirical studies concerning this aspect are still limited, we take the case of Indonesia over the period 2001-2013. Based on the quarterly data analysis, we found that the impact of credibility typically depends on characteristics of fiscal rules commitment. On one hand, the credibility of debt rule reduces the inflation rate. In contrast, the incredible deficit rule policy does not have any impact on the inflation rate and therefore does not support to inflation targeting. Given those results, we conclude that credibility matters in stabilizing price levels. Accordingly, those findings suggest tightening coordination between monetary and fiscal policy to maintain fiscal sustainability in accordance with price stabilization policy

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7

Taylor, John B. "Inflation targeting in high inflation emerging economies: lessons about rules and instruments." Journal of Applied Economics 22, no. 1 (January 1, 2019): 103–16. http://dx.doi.org/10.1080/15140326.2019.1565396.

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8

Sarkisyan, S. S. "Impact of the Monetary Policy Rules on the Inflation Targeting." Scientific Research of Faculty of Economics. Electronic Journal 12, no. 1 (March 28, 2020): 7–30. http://dx.doi.org/10.38050/2078-3809-2020-12-1-7-30.

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The standard version of the Taylor rule includes the inflation gap and the GDP gap in the right-hand side. I describe a modified version of it, where the exchange rate growth also determines the interest rate change. I estimate this version for a number of IT and non-IT countries in the periods before and after the financial crisis of 2008. First, countries of both groups are leading the similar politics post 2008. Second, if a central bank pays more attention to the inflation gap and GDP growth, it has a higher probability of an inflation target achievement.

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9

Cavoli, Tony, and Ramkishen S. Rajan. "Open economy inflation targeting arrangements and monetary policy rules." Indian Growth and Development Review 1, no. 2 (September 26, 2008): 237–51. http://dx.doi.org/10.1108/17538250810903800.

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10

Adnin, Zenathan, and Eugenia Mardanugraha. "Optimal Rules bagi Instrumen Kebijakan Moneter di Indonesia: Pengujian Empiris Model Guender." Jurnal Ekonomi dan Pembangunan Indonesia 9, no. 1 (July 1, 2008): 93–115. http://dx.doi.org/10.21002/jepi.v9i1.151.

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This study aims to test model developed by Guender (2002) in determining optimal rules for monetary policy instrument in Indonesia. The test is conducted by estimating parameters of IS equation and Forward Looking Phillips Curve. The result expected is rules for determining the optimal interest rate which is influenced by the gap between actual and targeted inflation. The result shows that in the era of inflation targeting the interest rate setting policy as monetary policy instrument has focus on output stability rather than inflation stability. Finally, the study concludes that the interest rate targeting as BI rate has not being optimal.

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11

Yağcıbaşı, Özge Filiz, and Mustafa Ozan Yıldırım. "Welfare Implications of Alternative Monetary Policy Rules: A New Keynesian DSGE Model for Turkey." Review of Economic Perspectives 17, no. 4 (December 20, 2017): 363–79. http://dx.doi.org/10.1515/revecp-2017-0019.

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Abstract In recent years, there has been extensive research on the conduct of monetary policy in small open economies that are subject to inflation and output fluctuations. Policymakers should decide whether to implement strict inflation targeting or to respond to the changes in output fluctuations while conducting monetary policy rule. This study aims to examine the response of alternative monetary policy rules to Turkish economy by means of a DSGE model that is subject to demand and technology shocks. The New Keynesian model we used is borrowed from Gali (2015) and calibrated for the Turkish economy. Welfare effects of alternative Taylor rules are evaluated under different specifications of central bank loss function. One of the main findings of this paper is that in the case of a technology shock, strict inflation targeting rules provide the minimum welfare loss under all loss function configurations. On the contrary, the losses are weakened if the monetary authority responds to output fluctuations in the presence of a demand shock. Finally, there exists a trade-off between the volatility of output and inflation in case of a technology shock, while the volatility of both variables moves in the same direction in response to a demand shock.

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12

Wanasilp, Mesa. "Monetary Policy Rules in Emerging ASEAN Economies." International Journal of Asian Business and Information Management 12, no. 3 (July 2021): 255–74. http://dx.doi.org/10.4018/ijabim.20210701.oa16.

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This paper examines the monetary policy rules for five emerging ASEAN economies—Indonesia, the Philippines, and Thailand as the adopters of inflation targeting (IT) and Malaysia and Vietnam as the non-IT adopters. For the methodology, this study applies a generalized method of moments that provides a consistent and efficient estimator for the estimation that contains endogenously determined variables. The questions are whether the rules of the IT adopters have fulfilled the Taylor principle and what has been the difference in the rules between the IT adopters and the non-IT adopters. The main findings are as follows: Regarding the IT adopters, their rules are characterized by inflation-responsive rules fulfilling the Taylor principle. As for the non-IT adopters, Malaysia follows solely an output-gap responsive rule, and Vietnam exhibits the mixed rules. The policy implications are that for the IT adopters there might be room to make their policy-rate responses more elastic to inflation, and that for the non-IT adopters, there would be a need to adopt an explicit IT framework.

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13

Combes, Jean-Louis, Xavier Debrun, Alexandru Minea, and Rene Tapsoba. "Inflation Targeting and Fiscal Rules: Do Interactions and Sequencing Matter?" IMF Working Papers 14, no. 89 (2014): 1. http://dx.doi.org/10.5089/9781498322379.001.

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14

Parrado, Eric. "Inflation Targeting and Exchange Rate Rules in an Open Economy." IMF Working Papers 04, no. 21 (2004): 1. http://dx.doi.org/10.5089/9781451921892.001.

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15

Leitemo, Kai. "Targeting inflation by forecast feedback rules in small open economies." Journal of Economic Dynamics and Control 30, no. 3 (March 2006): 393–413. http://dx.doi.org/10.1016/j.jedc.2004.03.007.

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16

Lombardo, Giovanni. "Inflation targeting rules and welfare in an asymmetric currency area." Journal of International Economics 68, no. 2 (March 2006): 424–42. http://dx.doi.org/10.1016/j.jinteco.2005.05.013.

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17

Erceg, Christopher J., Dale W. Henderson, and Andrew T. Levin. "Optimal Monetary Policy with Staggered Wage and Price Contracts." Credit and Capital Markets – Kredit und Kapital: Volume 52, Issue 4 52, no. 4 (October 1, 2019): 537–72. http://dx.doi.org/10.3790/ccm.52.4.537.

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Abstract We formulate an optimizing-agent model in which both labor and product markets exhibit monopolistic competition and staggered nominal contracts. The unconditional expectation of average household utility can be expressed in terms of the unconditional variances of the output gap, price inflation, and wage inflation. Monetary policy cannot achieve the Pareto-optimal equilibrium that would occur under completely flexible wages and prices; that is, the model exhibits a tradeoff in stabilizing the output gap, price inflation, and wage inflation. We characterize the optimal policy rule for reasonable calibrations of the model. We also find that strict price inflation targeting generates relatively large welfare losses, whereas several other simple policy rules perform nearly as well as the optimal rule. JEL Classification: E31; E32; E52

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18

Vasiljev, Tamara Bašić. "Estimated DSGE Model for Monetary and Fiscal Polic Coordination Analysis – The Case of Serbia." Journal of Central Banking Theory and Practice 7, no. 1 (January 1, 2018): 145–73. http://dx.doi.org/10.2478/jcbtp-2018-0007.

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AbstractWe present a new-Keynesian model for small open economy, with price rigidities stemming from a Calvo pricing scheme (1983), monopolistic banking system, financial dollarization of the economy and monetary and fiscal policy governed by rules. We estimate the model on Serbian data and propose various model extensions that could be used for monetary and fiscal policy analysis. We consider 6 combinations of monetary and fiscal policy regimes, inflation targeting and currency peg on one hand, and discretionary cyclically neutral fiscal policy and fiscal rules, on the other. The model with inflation targeting and discretionary fiscal policy fits the data best.

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19

Junicke, Monika. "TREND INFLATION AND MONETARY POLICY IN EASTERN EUROPE." Macroeconomic Dynamics 23, no. 4 (July 20, 2017): 1649–63. http://dx.doi.org/10.1017/s1365100517000372.

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I use a two-country dynamic stochastic general equilibrium (DSGE) model with a nonzero steady-state inflation to study monetary policy in transition economies. In particular, my analysis focuses on whether inflation targeting is based on a consumer price index (CPI) or its producer counterpart, producer price index (PPI). This issue is specifically relevant for transition economies as they might be subject to Balassa–Samuelson effects arising from trading in international markets. Under these circumstances, domestic inflation is possibly higher than imported inflation, hence targeting PPI inflation may prove more effective in influencing domestic macroeconomic variables than targeting CPI inflation. Using a Bayesian methodology, I find that the central banks of three Eastern European countries (namely, the Czech Republic, Hungary, and Poland) are likely to target PPI inflation rather than CPI inflation. This result is in line with the theoretical predictions in the literature, and is robust across several Taylor-type rules.

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20

Basu, Rilina, Nandini Das, and Ranjanendra Narayan Nag. "Openness, Inflation and Output Under Alternative Monetary Policies: A Structuralist Approach." Foreign Trade Review 54, no. 2 (March 15, 2019): 75–90. http://dx.doi.org/10.1177/0015732519831802.

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This article theoretically revisits the issue of how trade openness and inflation are interconnected in the light of conduct and optimal design of monetary policy. Central banks in open economies all over the world face a problematic dilemma when it comes to providing a nominal anchor to the economy in the sense that they have to choose between monetary targeting and inflation targeting. The experience has been varied worldwide with respect to these alternative policies in containing inflation. Different dimensions of openness like fully flexible exchange rate and capital mobility have also had significant impacts on the outcomes of policy changes. In this paper, we have constructed two theoretical open macro-economy models using the AD-AS framework under regressive expectations. The first model considers interest-rate targeting incorporating Taylor rule, whereas the second one deals with monetary targeting. The models show that alternate monetary policy rules do not change the basic results of different macroeconomic policies, although the underlying transmission mechanisms are quite different. JEL Codes: E12, E31, E43, E52, F41

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21

Drumond, Carlos Eduardo, and Gabriel Porcile. "Inflation targeting in a developing economy: policy rules, growth, and stability." Journal of Post Keynesian Economics 35, no. 1 (October 1, 2012): 137–62. http://dx.doi.org/10.2753/pke0160-3477350108.

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22

TESFASELASSIE, MEWAEL F., ERIC SCHALING, and SYLVESTER EIJFFINGER. "Learning about the Term Structure and Optimal Rules for Inflation Targeting." Journal of Money, Credit and Banking 43, no. 8 (November 28, 2011): 1685–706. http://dx.doi.org/10.1111/j.1538-4616.2011.00463.x.

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23

LEITEMO, KAI, and ULF SÖDERSTRÖM. "ROBUST MONETARY POLICY IN THE NEW KEYNESIAN FRAMEWORK." Macroeconomic Dynamics 12, S1 (April 2008): 126–35. http://dx.doi.org/10.1017/s1365100507070058.

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We study the effects of model uncertainty in a simple New Keynesian model using robust control techniques. Due to the simple model structure, we are able to find closed-form solutions for the robust control problem, analyzing both instrument rules and targeting rules under different timing assumptions. In all cases but one, an increased preference for robustness makes monetary policy respond more aggressively to cost shocks but leaves the response to demand shocks unchanged. As a consequence, inflation is less volatile and output is more volatile than under the nonrobust policy. Under one particular timing assumption, however, increasing the preference for robustness has no effect on the optimal targeting rule (nor on the economy).

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24

Woodford, Michael. "The Case for Forecast Targeting as a Monetary Policy Strategy." Journal of Economic Perspectives 21, no. 4 (November 1, 2007): 3–24. http://dx.doi.org/10.1257/jep.21.4.3.

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At central banks around the world, including the Bank of England, Sweden's Riksbank, Norway's Norges Bank, and the Reserve Bank of New Zealand, policy is conducted on the basis of “inflation-forecast targeting”: the central bank constructs quantitative projections of the economy's expected future evolution based on the way in which it intends to control short-term interest rates, and public discussion of those projections plays a critical role in justifying the banks' conduct of monetary policy to the public. What accounts for the appeal of this approach? Should it be adopted more widely or more explicitly? I review the long-running debate between proponents of monetary rules and proponents of discretionary monetary policy and argue that inflation-forecast targeting represents a powerful synthesis of the two approaches. I explore some common questions that arise about inflation-forecast targeting and consider how the U.S. Federal Reserve might move toward an explicit policy of inflation-forecast targeting.

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25

Pasca, Nilda Mercedes Cabrera, Edilean Kleber da Silva Bejarno Aragón, and Marcelo Savino Portugal. "Preferences of the Central Reserve Bank of Peru and optimal monetary rules in the inflation targeting regime." Estudos Econômicos (São Paulo) 42, no. 1 (March 2012): 5–42. http://dx.doi.org/10.1590/s0101-41612012000100001.

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This study aims to identify the preferences of the monetary authority in the Peruvian regime of inflation targeting through the derivation of optimal monetary rules. To achieve that, we used a calibration strategy based on the choice of values of the parameters of preferences that minimize the square deviation between the true interest rate and interest rate optimal simulation. The results showed that the monetary authority has applied a system of flexible inflation targeting, prioritizing the stabilization of inflation, but without disregarding gradualism in interest rates. On the other hand, concern over output stabilization has been minimal, revealing that the output gap has been important because it contains information about future inflation and not because it is considered a variable goal in itself. Finally, when the smoothing of the nominal exchange rate is considered in the loss function of the monetary authority, the rank order of preferences has been maintained and the smoothing of the exchange rate proved insignificant.

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26

Robert, Tangakou Soh, Mba Fokwa Arsѐne, and Akanga Reuben Johnson. "Contrôle De L’inflation En Regime De Change Fixe: Le Cas De La Communaute Economique Et Monetaire d’Afrique Centrale (CEMAC)." European Scientific Journal, ESJ 13, no. 10 (April 30, 2017): 379. http://dx.doi.org/10.19044/esj.2017.v13n10p379.

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This paper focuses on the determinants of inflation under different policy rules and fixed exchange rate regime, the example of the CEMAC zone. The purpose of this paper is to check the behaviour of inflation in fixed exchange rate regime for a flexible targeting period and a period of strict targeting. The data used are mainly from the World Bank, in «the book of world development indicators» contained in the CD -ROM (WDI 2015). Working for the periods 1977-1994, 1995-2012 and 1977-2012, the analyses was done with a dynamic panel that has the distinction of being among the independent variables, the endogenous variable lagged one or more periods. The endogenous variable is the rate of inflation. Estimates made from the Arellano and Bond (1991) method, it is clear that during the period (1977- 1994) of flexible inflation targeting, money supply, trade balance and the exchange rate are the main determinants of inflation. During the period (1995-2012) of strategy of strict inflation targeting, the main determinants of inflation are the benefits of natural resources, the trade balance and the economic crisis. The determinants of inflation have opposing effects of a match type to another and it is the combination of these effects for each variable that shows the different effects of the determinants of inflation over the period. The exchange rate increased the rate of inflation over the first sub-period (1977-1994) and throughout the entire period (1977-2012). In times (1995-2012) of strict inflation targeting, these negative effects were mitigated at the expense of economic growth. Countries with fixed exchange rate regime should not adopt a strict policy of inflation targeting, but should alternate with the growth objective by facilitating financing for investments.

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27

Khan, Mohsin S. "The Design and Conduct of Monetary Policy: Lessons for Pakistan (The Quaid-i-Azam Lecture)." Pakistan Development Review 48, no. 4I (December 1, 2009): 337–56. http://dx.doi.org/10.30541/v48i4ipp.337-356.

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Movements in global capital during the late 1990s and the greater emphasis on price stability led many countries to abandon fixed exchange rate regimes and to design institutions and monetary policies to achieve credibility in the goal of lowering inflation. Such recent developments have brought to the forefront the idea that freely mobile capital, independent monetary policy, and fixed exchange rates form an “impossible trinity”. Inflation-targeting regimes being adopted by many countries provide a way of resolving this dilemma, and it is suggested that such a regime be implemented in Pakistan as well. JEL classification: E42, E52 Keywords: Monetary Policy, Rules versus Discretion, Inflation Targeting

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28

Combes, Jean‐Louis, Xavier Debrun, Alexandru Minea, and René Tapsoba. "Inflation Targeting, Fiscal Rules and the Policy Mix: Cross‐effects and Interactions." Economic Journal 128, no. 615 (November 22, 2017): 2755–84. http://dx.doi.org/10.1111/ecoj.12538.

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29

Orlowski, Lucjan T. "Advancing Inflation Targeting in Central Europe: Strategies, Policy Rules and Empirical Evidence." Comparative Economic Studies 50, no. 3 (August 22, 2008): 438–59. http://dx.doi.org/10.1057/ces.2008.29.

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30

Khyareh, Mohsen, Vahid Omran, and Mohammad Ehsani. "Evaluating the welfare aspects of the simple monetary ruls for Iran." Ekonomski anali 60, no. 206 (2015): 141–66. http://dx.doi.org/10.2298/eka1506141k.

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This paper following a monetary growth rate rule aims to compare the properties of different monetary policy rules in Iran. In that regards, the paper draws on the New Keynesian Dynamic Stochastic General Equilibrium (DSGE) models. Within this framework, we rank the different policy rules based on the Impulse response Functions, the volatility of key macroeconomic variables and the welfare loss function. The paper concludes that the effects of alternative monetary rules depend on what shocks affect the economy, the exchange rate regime, and the choice of inflation index. When the economy experiences productivity shocks, domestic iflation targeting is welfare-superior to other monetary rules. However, in the case of other shocks except productivity shock a managed exchange rate is the best policy rule. Finally, the results of welfare loss of alternative monetary policy rules allowed noticing the nature of the shocks affecting the economy dictate the implication and choice of the best monetary policy rule.

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31

Wyplosz, Charles. "Fiscal Policy: Institutions versus Rules." National Institute Economic Review 191 (January 2005): 64–78. http://dx.doi.org/10.1177/0027950105052661.

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Fiscal discipline is as much needed as monetary discipline. Many countries have attempted to counter the deficit bias by adopting fiscal rules that typically set a limit to their annual budget deficits. The record is not satisfactory; rules are either too lax or too tight and then ignored. This article suggests that the solution is to adopt the approach followed by inflation targeting central banks, with great success. Independent and accountable Fiscal Policy Committees, given the task of achieving debt targets and the authority to decide - or recommend - annual deficits, will be free from the deficit bias. This will allow them to exercise discretion in the short run while delivering debt sustainability in the long run.

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32

Us, Vuslat. "Alternative Monetary Policy Rules in the Turkish Economy Under an Inflation-Targeting Framework." Emerging Markets Finance and Trade 43, no. 2 (April 2007): 82–101. http://dx.doi.org/10.2753/ree1540-496x430205.

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33

Aragón, Edilean Kleber da Silva Bejarano, and Marcelo Savino Portugal. "Central Bank preferences and monetary rules under the inflation targeting regime in Brasil." Brazilian Review of Econometrics 29, no. 1 (May 1, 2009): 79. http://dx.doi.org/10.12660/bre.v29n12009.2697.

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34

Golinelli, Roberto, and Riccardo Rovelli. "Monetary policy transmission, interest rate rules and inflation targeting in three transition countries." Journal of Banking & Finance 29, no. 1 (January 2005): 183–201. http://dx.doi.org/10.1016/j.jbankfin.2004.06.021.

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35

Moosavi Mohseni, Reza, and Adem Kilicman. "Hopf bifurcation in an open monetary economic system: Taylor versus inflation targeting rules." Chaos, Solitons & Fractals 61 (April 2014): 8–12. http://dx.doi.org/10.1016/j.chaos.2014.01.003.

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36

Malik, Wasim Shahid, and Ather Maqsood Ahmed. "Taylor Rule and the Macroeconomic Performance in Pakistan." Pakistan Development Review 49, no. 1 (March 1, 2010): 37–56. http://dx.doi.org/10.30541/v49i1pp.37-56.

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A near-consensus position in modern macroeconomics is that policy rules have greater advantage over discretion in improving economic performance. For developing countries in particular, simple instrument rules appear to be feasible options as pre-requisites since more sophisticated targeting rules are generally lacking. Using Pakistan’s data, this study has attempted to estimate the Taylor rule and use it as monetary policy strategy to simulate the economy. Our results indicate that the State Bank of Pakistan (SBP) has not been following the Taylor rule. In fact, the actual policy has been an extreme deviation from it. On the other hand, counterfactual simulation confirms that macroeconomic performance could have been better in terms of stability of inflation and output, had the Taylor rule been adopted as monetary policy strategy. The study also establishes that further gains are possible if the parameter values of the rule are slightly modified. JEL classification: E47, E31, E52 Keywords: Taylor Rule, Macroeconomic Performance, Counterfactual Simulation

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37

Blake, Andrew P., Martin Weale, and Garry Young. "Optimal Monetary Policy." National Institute Economic Review 164 (April 1998): 100–109. http://dx.doi.org/10.1177/002795019816400113.

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In this article we propose a policy framework for inflation targeting that contains elements of both optimal and simple rules. We use a simple feedback rule for the interest rate to look after monetary policy in the long run whilst using optimal control in the short run to determine appropriate responses to shocks. The composite policy is capable of substantial welfare improvements over using a simple rule alone whilst maintaining tractability. We see the use of such a framework together with a fully specified model as a feasible approach to practical policy design.

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38

Fetisov, G. "Russian Monetary Policy: Objectives, Instruments, and Rules." Voprosy Ekonomiki, no. 11 (November 20, 2008): 4–24. http://dx.doi.org/10.32609/0042-8736-2008-11-4-24.

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The article gives full treatment to monetary policy problems which are essential for the transition of the Russian economy to innovation-based development. The necessity for achieving all monetary policy objectives, instead of reducing them to inflation targeting, is justified. Systemic and structural approach to providing promotional monetary policy is suggested. The elaborated package of monetary policy tools allows ensuring higher efficiency of innovation-based economic development. Reasons for the relevance of the Central Bank of Russia discount rate decrease are given. Some general conclusions are drawn about new experience of governmental regulation under the conditions of the world financial crisis.

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39

Schaling, Eric. "The Nonlinear Phillips Curve and Inflation Forecast Targeting: Symmetric Versus Asymmetric Monetary Policy Rules." Journal of Money, Credit, and Banking 36, no. 3a (2004): 361–86. http://dx.doi.org/10.1353/mcb.2004.0060.

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40

Nesterova, Kristina. "Monetary policy special features in the context of low interest rates." Socium i vlast 2 (2020): 50–64. http://dx.doi.org/10.22394/1996-0522-2020-2-50-64.

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Introduction. The paper considers a wide range of monetary policy rules: integral stabilization, NGDP targeting, price level targeting, raising the inflation target, introducing negative nominal interest rates etc. The author also considers discretionary policy used by central banks when the nominal rate is close to zero, such as dramatic preventive cut of the key interest rate and interventions in the open markets with the aim of cutting long-term interest rates. The relevance of this problem is supported by global long-term macroeconomic and demographic factors, such as the dynamics of oil prices and the aging of the population. The aim of the paper is to identify the most effective monetary policy rules in order to reduce the risk of a nominal interest rate falling to zero. Methods. Analysis of the background and the results of general equilibrium models modeling monetary policy is carried out. Analysis of the role of current global trends (based on statistics) in aggravating the problem of declining interest rates. Scientific novelty of the research. The author systematizes the conclusions of modern macroeconomic theory, which offers a number of monetary rules making it possible to reduce the likelihood of falling into the zero bound of interest rate. Results. The effectiveness of monetary rules such as targeting nominal GDP and price levels in preventing the nominal interest rate from falling to zero is shown, primarily due to more efficient public expectations management which is a weak point of discretionary intervention. Conclusions. Under the current global factors for many developed countries and some oil-exporters, the downward trend in nominal rates persists. Combined with slowdown in economic growth, such threat may have negative consequences for the Russian economy. In this case, it seems reasonable to stick to the inflation target above 2% per year and in the future to consider switching to targeting the price level or nominal GDP.

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Clarida, Richard, Jordi Galí, and Mark Gertler. "The Science of Monetary Policy: A New Keynesian Perspective." Journal of Economic Literature 37, no. 4 (December 1, 1999): 1661–707. http://dx.doi.org/10.1257/jel.37.4.1661.

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The paper reviews the recent literature on monetary policy rules. We exposit the monetary policy design problem within a simple baseline theoretical framework. We then consider the implications of adding various real world complications. Among other things, we show that the optimal policy implicitly incorporates inflation targeting. We also characterize the gains from making a credible commitment to fight inflation. In contrast to conventional wisdom, we show that gains from commitment may emerge even if the central bank is not trying to inadvisedly push output above its natural level. We also consider the implications of frictions such as imperfect information.

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Johari, Mohd Naim Bin Mohd, Adem Kilicman, and David McMillan. "Hopf bifurcation in an open monetary economic system: Taylor vs. inflation targeting rules (Malaysian case)." Cogent Economics & Finance 5, no. 1 (January 1, 2017): 1327184. http://dx.doi.org/10.1080/23322039.2017.1327184.

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Kokoszczyński, Ryszard. "Poland Before the Euro." Journal of Public Policy 22, no. 2 (September 2002): 199–215. http://dx.doi.org/10.1017/s0143814x0200507x.

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The euro is relevant for decisions that the Polish Central Bank takes about its general rules of monetary policy, goals and decision structures, but it is not, or at least not yet, relevant to the everyday processes of controlling money supply and interest rates. Fighting inflation was a primary target of the central bank prior to applying for entry to the European Union and maintaining a satisfactory external account. However, with the growing openness of the economy, eclectic monetary policy showed a high degree of internal inconsistency. With greater autonomy under a new constitution, the Central Bank adopted direct inflation targeting. The adoption of this measure is consistent with emerging EU policy but was driven by specifically Polish concerns.

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Santoso, Wijoyo, and Iskandar Simorangkir. "PENGENDALIAN MONETER DALAM SISTEM NILAI TUKAR YANG FLEKSIBEL (Konsiderasi kemungkinan penerapan inflation targeting di Indonesia)." Buletin Ekonomi Moneter dan Perbankan 2, no. 2 (October 11, 2003): 1–42. http://dx.doi.org/10.21098/bemp.v2i2.195.

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Beralihnya sistem nilai tukar rupiah dari sistem mengambang terkendali (managed floating exchange rate) ke sistem nilai tukar mengambang penuh (floating exchange rate) memberikan dampak terhadap kebijakan moneter di Indonesia. Nilai tukar yang sebelumnya digunakan sebagai salah satu nominal anchor dalam pencapaian sasaran akhir kebijakan moneter tidak berlangsung lama digunakan lagi. Sementara dengan semakin terbukanya perekonomian Indonesia, nilai tukar rupiah sangat rentan terhadap arus lalu lintas modal internasional yang bergerak sedemikian dinamis.Pasar keuangan yang berkembang pesat sebagai imbas keterbukaan tersebut telah mendorong ketidak stabilan permintaan akan uang sehingga telah mengurangi efektivitas kebijakan moneter dengan pendekatan kuantitas. Ketidakstabilan permintaan uang tersebut antara lain disebabkan pesatnya perkembangan produk-produk keuangan dan terjadinya decoupling antara sektor keuangan dan sektor riil dimana uang bukan hanya sebagai alat transaksi tetapi juga sebagai barang yang diperdagangkan.Pengujian empiris dengan menggunakan vector autoregression dan Granger causality test versi Hsiao menunjukkan bahwa kebijakan moneter dengan inflation targeting dapat digunakan di Indonesia khususnya setelah era sistem nilai tukar fleksibel. Pengendalian moneter dalam kerangka inflation targeting dapat dilakukan dengan menggunakan sukubunga PUAB overnight sebagai kandidat utama sasaran operasional dan MCI sebagai sasaran antara, sementara underlying inflation sebagai sasaran akhir tunggal.Sementara penggunaan MCI sebagai sasaran antara tidak dilakukan secara kaku (policy rules) tetapi dimungkinkan terjadinya discretionary policy sepanjang shock terhadap inflasi dan nilai tukar berasal dari supply shock dan bersifat sementara. Disamping itu, masih kuatnya hubungan langsung antara monetary aggregates dengan inflasi maka pengalihan kebijakan moneter dari quantity targeting ke price targeting bukan merupakan substitusi penuh. Monetary aggregates masih tetap digunakan sebagai variabel indikator untuk mendeteksi tekanan terhadap inflasi.

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Krampf, Arie. "Monetary Power Reconsidered: The Struggle between the Bundesbank and the Fed over Monetary Leadership." International Studies Quarterly 63, no. 4 (August 19, 2019): 938–51. http://dx.doi.org/10.1093/isq/sqz060.

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Abstract This article reexamines the theory of monetary power to explain the role of the Bundesbank (and Germany) in the emergence of the rules-based low-inflation regime in the late1980s and early 1990s. Our theory of monetary power draws on the notion of institutional power and the concept of monetary leadership, understood as the capacity to attract foreign investment, and thereby explains how domestic institutional features and contingent historical events affect countries’ external monetary power. This theory is employed to trace how the Bundesbank go-it-alone strategy in 1989 triggered a cross-national sequence of events that changed the international monetary order in a way that was consistent with the German interests. The transition was marked by a shift from the US-led pragmatist approach of international macroeconomic coordination to a rules-based approach founded on the principle of low-inflation–targeting. The article argues that this change took place despite the opposition of the Federal Reserve System (Fed) and the US Treasury. The article contributes to the literature on the decline of US hegemonic power as well as the literature on the mechanism of institutional change at the international level. It also sheds new light on current debates about the putative decline of the rules-based world order.

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Eksi, Ozan, Neslihan Kaya Eksi, and Umit Ozlale. "A comparison of optimal policy rules prior to and during inflation targeting: empirical evidence from Bank of Canada." Applied Economics 49, no. 39 (January 4, 2017): 3899–911. http://dx.doi.org/10.1080/00036846.2016.1273488.

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Engel, Charles. "Currency Misalignments and Optimal Monetary Policy: A Reexamination." American Economic Review 101, no. 6 (October 1, 2011): 2796–822. http://dx.doi.org/10.1257/aer.101.6.2796.

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This paper examines optimal monetary policy in an open-economy two-country world with sticky prices under pricing to market. We show that currency misalignments are inefficient and lower world welfare. We find that optimal policy must target consumer price inflation, the output gap, and the currency misalignment. The paper derives the loss function of a cooperative monetary policymaker and the optimal targeting rules. The model is a modified version of Clarida, Galí, and Gertler (JME, 2002). The key change is that we allow pricing to market or local-currency pricing and consider the policy implications of currency misalignments. JEL: E52, F31, F41

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Díaz-Roldán, Carmen, Fernando Ferrari-Filho, and Julimar da Silva Bichara. "The performance of fiscal policy under an inflation targeting regime: What can be learned by the Brazilian fiscal rules?" Metroeconomica 70, no. 1 (November 4, 2018): 98–118. http://dx.doi.org/10.1111/meca.12231.

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Al-shawarby, Sherine, and Mai El Mossallamy. "Monetary-fiscal policies interactions and optimal rules in Egypt." Review of Economics and Political Science 4, no. 2 (June 5, 2019): 138–57. http://dx.doi.org/10.1108/reps-03-2019-0033.

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Purpose This paper aims to estimate a New Keynesian small open economy dynamic stochastic general equilibrium (DSGE) model for Egypt using Bayesian techniques and data for the period FY2004/2005:Q1-FY2015/2016:Q4 to assess monetary and fiscal policy interactions and their impact on economic stabilization. Outcomes of monetary and fiscal authority commitment to policy instruments, interest rate, government spending and taxes, are evaluated using Taylor-type and optimal simple rules. Design/methodology/approach The study extends the stylized micro-founded small open economy New Keynesian DSGE model, proposed by Lubik and Schorfheide (2007), by explicitly introducing fiscal policy behavior into the model (Fragetta and Kirsanova, 2010 and Çebi, 2011). The model is calibrated using quarterly data for Egypt on key macroeconomic variables during FY2004/2005:Q1-FY2015/2016:Q4; and Bayesian methods are used in estimation. Findings The results show that monetary and fiscal policy instruments in Egypt contribute to economic stability through their effects on inflation, output and debt stock. The monetary policy Taylor rule estimates reveal that the Central Bank of Egypt (CBE) attaches significant importance to anti-inflationary policy and (to a lesser extent) to output targeting but responds weakly to nominal exchange rate variations. CBE decisions are significantly influenced by interest rate smoothing. Egyptian fiscal policy has an important role in output and government debt stabilization. Additionally, the fiscal authority chooses pro-cyclical government spending and counter-cyclical tax policies for output stabilization. Again, past values of the fiscal instruments are influential in the evolution of the future fiscal policy-making process. Originality/value A few studies have examined the interaction between monetary and fiscal policy in Egypt within a unified framework. The presented paper integrates the monetary and fiscal policy analysis within a unified dynamic general equilibrium open economy rational expectations framework. Without such a framework, it would not be easy to jointly analyze monetary and fiscal transmission mechanisms for output, inflation and debt. Also, it would be neither possible to contrast the outcome of monetary and fiscal authorities commitment to a simple Taylor instrument rule vis-à-vis optimal policy outcomes nor to assess the behavior of monetary and fiscal agents in macroeconomic stability in context of an active/passive policy decisions framework.

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Melesse, Wondemhunegn Ezezew. "Business cycles in Ethiopia under alternative monetary policy rules." African Journal of Economic and Management Studies 10, no. 3 (September 2, 2019): 299–313. http://dx.doi.org/10.1108/ajems-12-2018-0395.

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Purpose The purpose of this paper is to compare business cycle fluctuations in Ethiopia under interest rate and money growth rules. Design/methodology/approach In order to achieve this objective, the author constructs a medium-scale open economy dynamic stochastic general equilibrium (DSGE) model. The model features several nominal and real distortions including habit formation in consumption, price rigidity, deviation from purchasing power parity and imperfect capital mobility. The paper also distinguishes between liquidity-constrained and Ricardian households. The model parameters are calibrated for the Ethiopian economy based on data covering the period January 2000–April 2015. Findings The main result suggests that: the model economy with money growth rule is substantially less powerful or more muted for the amplification and transmission of exogenous shocks originating from government spending programs, monetary policy, technological progress and exchange rate movements. The responses of output to fiscal policy shocks are relatively stronger under autarky which appears to confirm the findings of Ilzetzki et al. (2013) who suggest bigger multipliers in self-sufficient, closed economies. With regard to positive productivity shock, however, the model with interest rate feedback rule generates a decline in output and an increase in inflation, which are at odds with conventional empirical regularities. Research limitations/implications The major implication is that a central bank regulating some measure of monetary stocks should not expect (fear) as much expansion (contraction) in output following currency devaluation (liquidity withdrawal) as a sister central bank that relies on an interest rate feedback rule. As emphasized by Mishra et al. (2010) the necessary conditions for stronger transmission of interest-rule-based monetary policy shocks are hardly existent in emerging and developing economies targeting monetary aggregates; hence the relatively weaker responses of output and inflation in the model economy with money growth rule. Monetary policy authorities need to be cautious when using DSGE models to analyze business cycle dynamics. Quite often, DSGE models tend to mimic the proverbial “crooked house” built to every man’s advise. Whenever additional modification is made to an existing baseline model, previously established regularities break down. For instance, this paper documented negative response of output to technology shock. Such contradictions are not uncommon. For example, Furlanetto (2006) and Ramayandi (2008) have also found similarly inconsistent responses to fiscal and productivity shocks, respectively. Originality/value Using DSGE models for research and teaching purposes is not common in developing economies. To the best of the author’s knowledge, only one other Ethiopian author did apply DSGE model to study business cycle fluctuation in Ethiopia albeit under the implausible assumption of perfect capital mobility and a central bank following interest rate rule. The contribution of this paper is that it departs from these two unrealistic assumptions by allowing international risk premium as a function of the net foreign asset position of the country and by applying money growth rule which closely mimics the behavior of central banks in low-income economies such as Ethiopia.

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