Monetary Policy Rules for Financially Vulnerable EconomieEd

Eduardo Moron () and Diego Winkelried ()

Abstract: One distinguishable characteristic of emerging economies is that they are not financially robust. These economies are incapable to smooth out large external shocks as sudden capital outflows imply large and abrupt swings in the real exchange rate. Using a small open economy model this paper examines alternative monetary policy rules for economies with different degrees of liability dollarization. The paper answers the question of how efficient is to use inflation targeting under high liability dollarization. Our findings suggest that it might be optimal to follow a non-linear policy rule that defends the real exchange rate in a financially vulnerable economy.

JEL-codes: E58 E52 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn and nep-mon
Date: Written 2002-05-01
Note: Type of Document - pdf; prepared on IBM PC - PC-TEX/; to print on HP; pages: 30

Downloads: (external link)
http://129.3.20.41/eps/mac/papers/0205/0205001.pdf (application/pdf)

Related works:
Working Paper: Monetary Policy Rules for Financially Vulnerable Economies (2003)
Journal Article: Monetary policy rules for financially vulnerable economies (2005)
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