Arbeitspapier
Interest rate uncertainty as a policy tool
We study a novel policy tool-interest rate uncertainty-that can be used to discourage inefficient capital inflows and to adjust the composition of external account between shortterm securities and foreign direct investment (FDI). We identify the trade-offs faced in navigating between external balance and price stability. The interest rate uncertainty policy discourages short-term inflows mainly through portfolio risk and precautionary saving channels. A markup channel generates net FDI inflows under imperfect exchange rate passthrough. We further investigate new channels under different assumptions about the irreversibility of FDI, the currency of export invoicing, risk aversion of outside agents, and effective lower bound in the rest of the world. Under every scenario, uncertainty policy is inflationary.
- Language
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Englisch
- Bibliographic citation
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Series: Bank of Canada Staff Working Paper ; No. 2020-13
- Classification
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Wirtschaft
Business Fluctuations; Cycles
International Investment; Long-term Capital Movements
Current Account Adjustment; Short-term Capital Movements
International Financial Policy: Financial Transactions Tax; Capital Controls
International Financial Markets
- Subject
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International financial markets
Uncertainty and monetary policy
Monetary policy framework
- Event
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Geistige Schöpfung
- (who)
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Ghironi, Fabio
Ozhan, G. Kemal
- Event
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Veröffentlichung
- (who)
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Bank of Canada
- (where)
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Ottawa
- (when)
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2020
- DOI
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doi:10.34989/swp-2020-13
- Handle
- Last update
-
10.03.2025, 11:41 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Ghironi, Fabio
- Ozhan, G. Kemal
- Bank of Canada
Time of origin
- 2020
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