Monetary Policy in Emerging Markets, Labor Market Search and Exchange Rate Pass-Through

Fabián De Achával () and Xavier Fairise ()
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Fabián De Achával: University of Evry, EPEE and TEPP (FR N3126, CNRS)

No 08-13, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: Standard small open economy models are often unsuitable to deal with the specific economic characteristics of emerging markets. In this paper we lay out a dynamic general-equilibrium model of an emerging small open economy in order to analyze the performance of alternative monetary policies. Our analysis incorporates to the model a non-walrasian labor market and an exchange rate pass-through to domestic prices. One of the central arguments of this paper is that the nature of the trade off between fixed and floating exchange rate regimes in emerging markets’ economies may be quite di¤erent to that of the industrial countries. In line with empirical evidence, our model predicts that countries exhibiting a high exchange rate pass-through will tend to smooth the exchange rate volatility.

Keywords: Monetary Policy; Labor Market Search; Inflation; Exchange Rate Arrangements; Emerging Markets (search for similar items in EconPapers)
Pages: 38 pages
Date: 2008
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