Stabilizing Inflation in Iceland

Keiko Honjo and Benjamin Hunt

No 2006/262, IMF Working Papers from International Monetary Fund

Abstract: This paper provides some empirical estimates on how tightly is it feasible to control inflation in a very small open economy such as Iceland. Estimated macroeconomic models of Canada, Iceland, New Zealand, the United Kingdom, and the United States are used to derive efficient monetary policy frontiers that trace out the locus of the lowest combinations of inflation and output variability that are achievable under a range of alternative monetary policy rules. These frontiers illustrate that inflation stabilization is more challenging in Iceland than in other industrial countries primarily because of the relative magnitudes of the economic shocks.

Keywords: WP; inflation-output variability trade-off (search for similar items in EconPapers)
Pages: 35
Date: 2006-11-01
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Citations: View citations in EconPapers (7)

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