CPI Inflation Targeting and Exchange Rate Pass-through

Alessandro Flamini ()

Macroeconomics from University Library of Munich, Germany

Abstract: This paper analyzes how imperfect exchange rate pass-through affects the transmission of the CPI inflation targeting optimal monetary policy. In the short run, delayed pass-through constraints monetary policy more than incomplete pass-through and interest rate smoothing amplifies this effect. In addition, imperfect pass-through does not increase the variability of the real exchange rate for a subset of strict CPI inflation targeting cases and for flexible CPI inflation targeting. Furthermore, there exists an inverse relation between the pass-through and the insulation of CPI inflation from foreign shocks, and when the pass-through falls, the impact on the trade-off between the stabilization of both CPI inflation and output depends on how strictly the central bank is targeting CPI inflation and on the kind of imperfect pass-through.

Keywords: Inflation Targeting; Exchange Rate Pass-through; Open-economy; Direct Exchange Rate Channel; Optimal Monetary Policy. (search for similar items in EconPapers)
JEL-codes: E52 E58 F41 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2003-06-26
New Economics Papers: this item is included in nep-ifn
Note: Type of Document - Acrobat PDF; prepared on IBM PC ; to print on HP; pages: 37 ; figures: included
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0306017

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