RULES ON MONETARY POLICY AND INTERNATIONAL IMPERFECT SUBSTITUTIONS OF ASSETS

Taufiq Carnegie Dawood

Abstract


This paper revisits and extend discussions which evaluate the impact of different rules on monetary policy. Rules on one which excludes or includes stability of the exchange rate as an objective of monetary policy making, with currency mismatch existence as given, on the fluctuations of major economic variables. In this paper I develop a financial accelerator model with financial intermediary consistent with currency mismatch, and assume imperfect international substitutability of assets. This paper found that the variation of rule of monetary policy considered in the analysis produces variations in the fluctuations of the macroeconomic variable. However the impact of the different monetary policy rules on the stability of the macroeconomic variables is shock dependent.

Keywords


Shocks to Risk Premium Shocks, Economic Variations, DSGE, Policy Rules

Full Text:

PDF

References


Bernanke, B. S., Gertler, M., & Gilchrist, S. (1999). The financial accelerator in a quantitative business cycle framework. Handbook of macroeconomics, 1, 1341-1393.

Carlstrom, C. T., & Fuerst, T. S. (1997). Agency costs, net worth, and business fluctuations: A computable general equilibrium analysis. The American Economic Review, 893-910.

Céspedes, L. F., Chang, R., & Velasco, A. (2004). “Balance Sheets and Exchange Rate Policy.” The American Economic Review 94(4), 1183-193. http://www.jstor.org/stable/3592812.

Calvo, G. A. (1983). Staggered prices in a utility-maximizing framework. Journal of monetary Economics, 12(3), 383-398.

Calvo, G. A. (2006). Monetary policy challenges in emerging markets: Sudden stop, liability dollarization, and lender of last resort (No. w12788). National Bureau of Economic Research.

Choi, W. G., & Cook, D. (2004). Liability dollarization and the bank balance sheet channel. Journal of International Economics, 64(2), 247-275.

Dib, A. (2011). Monetary policy in estimated models of small open and closed economies. Open Economies Review, 22(5), 769-796.

Eichengreen, B., & Hausmann, R. (1999). Exchange rates and financial fragility (No. w7418). National bureau of economic research.

Kaminsky, G. L., & Reinhart, C. M. (1998). Financial crises in Asia and Latin America: Then and now. The American Economic Review, 88(2), 444-448.

Liu, Z., & Spiegel, M. M. (2013, September). Monetary policy regimes and capital account restrictions in a small open economy. Federal Reserve Bank of San Francisco.

Peters, A. (2009). Exchange rate targeting in an estimated small open economy. University of North Carolina at Chapel Hill.




DOI: https://doi.org/10.29103/e-mabis.v19i1.280

Copyright (c) 2018 Taufiq Carnegie Dawood