Cover IMF Working Papers
Explicit and Implicit Targets in Open Economies
Author: Ms. Silvia Sgherri
Series:
IMF Working Papers
Volume/Issue:
Volume 2005: Issue 176
Language:
English
Publication Date:
01 Sep 2005
DOI:
https://doi.org/10.5089/9781451861952.001
ISBN:
9781451861952
ISSN:
1018-5941
Pages:
27
Keywords:
WP; mover accent; output gap; Inflation targeting; interest rate rules; exchange rates; monetary policy; interest rate rule; reaction function; interest rate movement; interest rate response; inflation-targeting open economies; responses to deviation; exchange rate misalignment; output gap forecast; interest rate reaction function; interest rate change; exchange rate response; monetary policy response; Real exchange rates; Consumer price indexes; Inflation; Australia and New Zealand
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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Under a flexible inflation targeting regime, should policymakers avoid any reaction to movements in the foreign exchange market? Using data for six advanced open economies explicitly targeting inflation, the paper examines empirically whether real exchange rate disequilibria systematically affect the conduct of monetary policy. Estimates indicate that monetary policy responses in inflation-targeting, open economies have changed significantly, as the institutional framework for the conduct of monetary policy has evolved. In particular, an explicit target for core inflation and a greater use of the expectation channel of monetary policy appear to be key features of the newest policy framework. In this context, central banks are unlikely to react to regular fluctuations in the exchange rate.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund