Targeting Rules for an Open Economy

被引:0
作者
Hyuk Jae Rhee
Nurlan Turdaliev
机构
[1] University of Windsor,Department of Economics
来源
Open Economies Review | 2012年 / 23卷
关键词
Inflation persistence; Direct exchange rate channel; Inflation targeting; Small open economy; E31; E58; F41;
D O I
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中图分类号
学科分类号
摘要
This study extends the formal analysis of inflation targeting monetary policy using the standard New Keynesian framework to a small open economy by adding inflation and output persistence as well as a direct exchange rate channel to domestic inflation. We find that output variability is lower under CPI inflation targeting than under domestic inflation targeting. However, CPI inflation results in higher variability of the real exchange rate than domestic inflation targeting. Output and the nominal interest rate are less volatile under flexible inflation targeting than under almost-strict inflation targeting. We also find that almost-strict domestic inflation targeting cannot completely insulate domestic inflation from foreign shocks due to a direct exchange rate channel. The model is calibrated to Canadian data.
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页码:447 / 471
页数:24
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