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Monetary Policy Choices in Emerging Market Economies: The Case of High Productivity Growth.

Authors :
RAVENNA, FEDERICO
NATALUCCI, FABIO M.
Source :
Journal of Money, Credit & Banking (Wiley-Blackwell); Mar2008, Vol. 40 Issue 2/3, p243-271, 29p, 1 Chart, 6 Graphs
Publication Year :
2008

Abstract

We develop a general equilibrium model of an emerging market economy where productivity growth differentials between tradable and non-tradable sectors result in an equilibrium appreciation of the real exchange rate—the so-called Balassa-Samuelson effect. The paper explores the dynamic properties of this economy and the welfare implications of alternative policy rules. We show that the real exchange rate appreciation limits the range of policy rules that, with a given probability, keep inflation and exchange rate within predetermined numerical targets. We also find that the B–S effect raises by an order of magnitude the welfare loss associated with policy rules that prescribe active exchange rate management. [ABSTRACT FROM AUTHOR]

Details

Language :
English
ISSN :
00222879
Volume :
40
Issue :
2/3
Database :
Complementary Index
Journal :
Journal of Money, Credit & Banking (Wiley-Blackwell)
Publication Type :
Academic Journal
Accession number :
31468332
Full Text :
https://doi.org/10.1111/j.1538-4616.2008.00112.x