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Distributional Effects of Monetary Policy in Emerging Market Economies

Eswar Prasad and Boyang Zhang ()

No 21471, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a two-sector, heterogeneous-agent model with incomplete financial markets to study the distributional effects and aggregate welfare implications of alternative monetary policy rules in emerging market economies. Relative to inflation targeting, exchange rate management benefits households in the tradable goods sector but in the long run these households are worse off due to higher consumption volatility. A fixed exchange rate reduces the welfare of these households and aggregate welfare when the economy is hit by positive shocks to nontradable goods productivity or foreign interest rates. Fiscal policy can more efficiently achieve similar short-run distributional objectives as exchange rate management.

JEL-codes: E25 E52 E58 F41 (search for similar items in EconPapers)
Date: 2015-08
Note: IFM
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Citations: View citations in EconPapers (10)

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