Monetary Policy Under Commodity Price Fluctuations

Roberto Chang

Review of Development Economics, 2015, vol. 19, issue 2, 282-296

Abstract: This paper discusses monetary policy in a New Keynesian open economy subject to commodity price fluctuations. We review theoretical results that imply that stabilizing the producer price index (PPI) is optimal only under special circumstances. In a calibrated version of the model, PPI targeting is compared against a policy that stabilizes a forecast of the consumer price index. The results depend on model specifics, especially elasticities of substitution and the structure of international asset markets.

Date: 2015
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Working Paper: Monetary Policy Under Commodity Price Fluctuations (2013)
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