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Rules versus discretion on the choice between exchange-rate-targeting and monetary-aggregate-targeting.
- Source :
-
Journal of Economic Policy Reform . Mar2009, Vol. 12 Issue 1, p43-55. 13p. - Publication Year :
- 2009
-
Abstract
- This paper compares the performance of inflation and welfare loss between exchange-rate-targeting and monetary-aggregate-targeting regimes for a small-open economy characterized by a rational expectations model of the Phillips curve. We also consider rules-versus-discretion in policy. We obtain three interesting results. First, both regimes result in the same target rate of inflation and the smallest long-run welfare loss, if an active contingent rule is credibly followed. Second, when discretion is undertaken, an exchange-rate-targeting policy is always superior to a monetary-aggregate-targeting one. Third, for a simple fixed rule, Friedman-type's monetary-aggregate-targeting policy works better than exchange-rate-targeting only under specific circumstances. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 17487870
- Volume :
- 12
- Issue :
- 1
- Database :
- Academic Search Index
- Journal :
- Journal of Economic Policy Reform
- Publication Type :
- Academic Journal
- Accession number :
- 36838889
- Full Text :
- https://doi.org/10.1080/17487870902739210