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Inflation Stabilization (inflation + stabilization)
Selected AbstractsMonetary Policy and the Taylor Principle in Open EconomiesINTERNATIONAL FINANCE, Issue 3 2006Ludger Linnemann Nowadays, central banks mostly conduct monetary policy by setting nominal interest rates. A widely held view is that central banks can stabilize inflation if they follow the Taylor principle, which requires raising the nominal interest rate more than one-for-one in response to higher inflation. Is this also correct in an economy open to international trade? Exchange rate changes triggered by interest rate policy might interfere with inflation stabilization if they alter import prices. The paper shows that this destabilizing effect can prevail if (a) the central bank uses consumer (rather than producer) prices as its inflation indicator or directly reacts to currency depreciation, and (b) if it bases interest rate decisions on expected future inflation. Thus, if the central bank looks at current inflation rates and ignores exchange rate changes, Taylor-style interest rate setting policies are advisable in open economies as well. [source] Monetary Policy, Price Stability and Output Gap StabilizationINTERNATIONAL FINANCE, Issue 2 2002Vitor Gaspar Using a standard New,Keynesian model, this paper examines three reasons why monetary policy should primarily focus on price stability rather than the stabilization of output around potential, even if there appears to be an exploitable trade,off between the volatility of inflation and that of the output gap. First, we discuss the well,known time,inconsistency problem associated with active output gap stabilization. Increasing the relative weight on inflation stabilization improves the equilibrium outcome. Second, we analyse some of the problems associated with the substantial uncertainty that surrounds estimates of potential output. We argue that focusing on price stability is a robust monetary policy strategy in the face of such uncertainty. Finally, we consider the case where private agents are trying to estimate the inflation generating process using an ,ad hoc', but reasonable learning rule. By emphasizing a single goal the central bank facilitates the process of learning, thereby stablizing both inflation and the output gap. [source] Nominal debt and inflation stabilizationINTERNATIONAL JOURNAL OF ECONOMIC THEORY, Issue 4 2009Shigeto Kitano E63; F41 The "fiscal theory of currency crises" (Daniel 2001; Corsetti and Ma,kowiak 2005, 2006) claims that with long-term nominal debt, a government can delay the timing of an inevitable currency crisis that results from a fiscal shock. The present paper shows that, in contrast, long-term nominal debt might have destabilizing effects when a government introduces an inflation stabilization policy. It is shown that a stabilization policy that is successful in the absence of long-term nominal debt can cause a crisis when long-term nominal debt exists. The model implies that a government with a large stock of long-term nominal debt must overcome a high fiscal hurdle for a successful stabilization policy. This difficulty is avoidable if long-term debt is indexed to inflation. [source] Monetary policy and exchange rate pass-through,INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 4 2004Joseph E. Gagnon Abstract The pass-through of exchange rate changes into domestic inflation appears to have declined in many countries since the 1980s. We develop a theoretical model that attributes the change in the rate of pass-through to increased emphasis on inflation stabilization by many central banks. This hypothesis is tested on 20 industrial countries between 1971 and 2003. We find widespread evidence of a robust and statistically significant link between estimated rates of pass-through and inflation variability. We also find evidence that observed monetary policy behaviour may be a factor in the declining rate of pass-through. Published in 2004 by John Wiley & Sons, Ltd. [source] | ||||||||||