Monetary Rules for Emerging Market Economies

Alessandro Rebucci () and Fabio Ghironi

No 2002/034, IMF Working Papers from International Monetary Fund

Abstract: We compare the performance of a currency board, inflation targeting, and dollarization in a small, open developing economy with a liberalized capital account. We focus on the transmission of shocks to currency and country risk premia and on the role of fluctuations in premia in the propagation of other shocks. We calibrate our model on Argentina. The framework matches the second moments of key variables well. Welfare analysis suggests that dollarization is preferable to alternative regimes because it removes currency premium volatility. However, a currency board can match dollarization on welfare grounds if the central bank holds a sufficiently large stock of foreign reserves.

Keywords: WP; Argentina; business cycles; emerging markets; monetary rules; risk premia; welfare; Contents; currency premium; currency risk; present discounted value; home currency price; money balance; currency bond; discount factor; nominal money balance; currency holding; currency Board regime; currency discount factor; Currencies; Currency boards; Consumption; Bonds; Dollarization (search for similar items in EconPapers)
Pages: 41
Date: 2002-02-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Related works:
Working Paper: Monetary Rules for Emerging Market Economies (2004)
Working Paper: Monetary Rules for Emerging Market Economies (2001)
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