Explicit and implicit targets in open economies
By: prepared by Silvia Sgherri.
Contributors: International Monetary Fund. European Dept.
Series: IMF working paper -- WP/05/176
Publisher: International Monetary Fund, European Dept.
Published: 2005
Place of publication: Washington, D.C
Language: eng
Number of pages: 26
Subjects: Inflation (Finance) -- Econometric models.; Foreign exchange rates -- Econometric models.; Monetary policy -- Econometric models.
Description: Under a flexible inflation targeting regime, should policymakers avoid any reaction to movements in the foreign exchange market? Using data for six advanced open economies explicitly targeting inflation, the paper examines empirically whether real exchange rate disequilibria systematically affect the conduct of monetary policy. Estimates indicate that monetary policy responses in inflation-targeting, open economies have changed significantly, as the institutional framework for the conduct of monetary policy has evolved. In particular, an explicit target for core inflation and a greater use of the expectation channel of monetary policy appear to be key features of the newest policy framework. In this context, central banks are unlikely to react to regular fluctuations in the exchange rate.
Notes: "September 2005."

Includes bibliographical references (p. 24-26).

Also available on the World Wide Web.