IMF Working Papers Volume 2002 Issue 034: Monetary Rules for Emerging Market Economies (2002)

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Monetary Rules for Emerging Market Economies

Author:

Mr. Alessandro Rebucci

Mr. Alessandro Rebucci
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and

Mr. Fabio Ghironi

Mr. Fabio Ghironinull

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Series:: IMF Working Papers

Volume/Issue:: Volume 2002: Issue 034

Language:: English

Publication Date:: 01 Feb 2002

DOI:: https://doi.org/10.5089/9781451845273.001

ISBN:: 9781451845273

ISSN:: 1018-5941

Pages:: 41

Keywords:: WP; Argentina; business cycles; emerging markets; monetary rules; risk premia; welfare; Contents; currency premium; currency risk; present discounted value; home currency price; money balance; currency bond; discount factor; nominal money balance; currency holding; currency Board regime; currency discount factor; Currencies; Currency boards; Consumption; Bonds; Dollarization

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Series:: IMF Working Papers

Volume/Issue:: Volume 2002: Issue 034

Language:: English

Publication Date:: 01 Feb 2002

DOI:: https://doi.org/10.5089/9781451845273.001

ISBN:: 9781451845273

ISSN:: 1018-5941

Pages:: 41

Keywords:: WP; Argentina; business cycles; emerging markets; monetary rules; risk premia; welfare; Contents; currency premium; currency risk; present discounted value; home currency price; money balance; currency bond; discount factor; nominal money balance; currency holding; currency Board regime; currency discount factor; Currencies; Currency boards; Consumption; Bonds; Dollarization

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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We compare the performance of a currency board, inflation targeting, and dollarization in a small, open developing economy with a liberalized capital account. We focus on the transmission of shocks to currency and country risk premia and on the role of fluctuations in premia in the propagation of other shocks. We calibrate our model on Argentina. The framework matches the second moments of key variables well. Welfare analysis suggests that dollarization is preferable to alternative regimes because it removes currency premium volatility. However, a currency board can match dollarization on welfare grounds if the central bank holds a sufficiently large stock of foreign reserves.

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IMF Working Papers

ISSN:: 1018-5941

Publisher:: International Monetary Fund

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