Open-Economy Inflation Targeting

Monetary policy and exchange rate overshooting: Dornbusch was right after all

“…The variables in the VAR model are chosen to reflect the theoretical set up of a NewKeynesian small open economy model, such as that described in Clarida et al (2001) and Svensson (2000). In particular, the VAR model comprises the annual change in the log of consumer prices (π t ) -referred to hereafter as inflation, the log of real gross domestic product, (y t ), the three month domestic interest rate (i t ), the trade-weighted foreign interest rate (i t *) and the first difference of the log of the trade-weighted real exchange rate (Δe t ).…”

Do central banks respond to exchange rate movements? A structural investigation

“…Using a highly stylized model he finds that the central bank should optimally react to exchange rate movements with 1/10th of the weight on inflation. His results are echoed by Svensson (2000) in a richer modelling environment with forward-looking agents and some microfoundations. He cautions, however, that the welfare effects of exchange-rate targeting are small and may even be negative.…”

Política monetária e taxa de câmbio em uma pequena economia aberta: uma análise empírica para o Brasil

“…Substituindo na equação (2), temos a repre-9 A escolha das variáveis segue o padrão da literatura em modelos novo-keynesianos para pequenas economias abertas (ver, por exemplo, Svensson (2000); Clarida, Galí e Gertler (2001)). Para determinarmos como a política monetária responde a movimentos na taxa de câmbio, será imposta a restrição de que a taxa de câmbio se aprecia (ou seja, diminui) em resposta a um choque de política monetária contracionista (aumento na taxa de juros).…”