Inflation Targeting and Exchange Rate Management In Less Developed Countries

Inflation Targeting and Exchange Rate Management In Less Developed Countries
Author :
Publisher : International Monetary Fund
Total Pages : 65
Release :
ISBN-10 : 9781513567433
ISBN-13 : 1513567438
Rating : 4/5 (438 Downloads)

Book Synopsis Inflation Targeting and Exchange Rate Management In Less Developed Countries by : Mr.Marco Airaudo

Download or read book Inflation Targeting and Exchange Rate Management In Less Developed Countries written by Mr.Marco Airaudo and published by International Monetary Fund. This book was released on 2016-03-08 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.


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