Monetary Policy Rules for Financially Vulnerable Economies

Morón, Eduardo; Winkelried, Diego

doi:10.2139/ssrn.283496

Cited by 22 publications

(37 citation statements)

References 36 publications

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“…The first one focuses on the design of monetary policy in financially fragile small open economies. Cespedes et al (2004), Moron and Winkelried (2005) and Devereux et al (2006) compare the performance of different monetary regimes in small open economies featuring financial market imperfections. Contrary to this paper, their models focus on business cycle fluctuations and are not suited to study economies occasionally subject to financial crises.…”

mentioning

confidence: 99%

Financial crises and exchange rate policy

Fornaro

2015

Journal of International Economics

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This paper studies exchange rate policy in a small open economy model featuring an occasionally binding collateral constraint and Fisherian deflation. The goal is to evaluate the performance of alternative exchange rate policies in sudden stopprone economies. The key element of the analysis is a pecuniary externality arising from frictions in the international credit markets, which creates a trade-off between price and financial stability. The main result is that the appropriate exchange rate policy sustains the value of collateral and access to international credit markets during financial crises.

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confidence: 99%

Financial crises and exchange rate policy

Fornaro

2015

Journal of International Economics

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“…Nevertheless, we force our prior for the parameter μ to be positive for Peru, given the evidence found by Morón and Winkelried (2005). As explained earlier, in our model, this effect is captured arbitrarily by incorporating the real exchange rate equation in the risk premium,…”

Section: Utility Functionsmentioning

confidence: 98%

Exchange rate intervention in small open economies: The role of risk premium and commodity price shocks

García

González²

2013

International Review of Economics & Finance

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“…Batini et al (2007), Ravenna and Natalucci (2008) consider that responding to the level of the exchange rate reduces the inflation and output stabilization results. Moron and Winkelried (2005) explain that CBs should respond lightly to a combination of the level and change in the exchange rate to improve the performance in this case.…”

Section: Hybrid Policy Rules and Macroeconomic Performancementioning

confidence: 99%

“…The studies have produced contradictory results: Moron and Winkelried (2005), for instance, show that taking exchange into consideration in the interest rate rule can be beneficial in terms of inflation volatility and output for economies displaying a high financial vulnerability.…”

Section: The Central Bank's Reaction To Exchange Rate Variationsmentioning

confidence: 99%

The Hybrid Approach of Inflation Targeting: What Opportunities for an Emerging Economy Like Tunisia?

Mehri¹,

Ameur²

2016

EJEF

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After economic crises happening in many emerging countries, flexible exchange rates became a required theoretical condition helping to target inflation. Many countries stopped using exchange rate as an anchor for monetary policy and started using inflation targeting framework. In emerging countries, monetary authorities work to stabilize the exchange rate because of their "fear of floating". They are against high volatility of interest rate allowing speculative attacks and causing free fluctuations of their national currency. To avoid uncontrolled market movements, they have to choose between active and public exchange rate management and tight inflation targeting. In the same vein, Central bank of Tunisia follows financial measures linked closely to inflation without focusing especially on monetary aggregates in order to study a possible transition to targeting inflation strategy. It uses a simple Taylor rule where interest rates adjustment are guided by the anticipated inflation deviation from its original target and also by the gap between observed and potential GDP.As an emerging economy with a high degree of financial vulnerability, and facing different shocks, Tunisia should adopt a hybrid rule of inflation targeting in an open economy. This hybrid rule explicitly takes into account the evolution of the exchange rate in the reaction function of the central bank.

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Monetary Policy Rules for Financially Vulnerable Economies

Cited by 22 publications

References 36 publications

Financial crises and exchange rate policy

Financial crises and exchange rate policy

Exchange rate intervention in small open economies: The role of risk premium and commodity price shocks

The Hybrid Approach of Inflation Targeting: What Opportunities for an Emerging Economy Like Tunisia?

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