Distributional Effects of Monetary Policy in Emerging Market Economies

Arbeitspapier

We develop a two-sector, heterogeneous-agent model with incomplete financial markets to study the distributional effects and aggregate welfare implications of alternative monetary policy rules in emerging market economies. Relative to inflation targeting, exchange rate management benefits households in the tradable goods sector but in the long run these households are worse off due to higher consumption volatility. A fixed exchange rate reduces the welfare of these households and aggregate welfare when the economy is hit by positive shocks to nontradable goods productivity or foreign interest rates. Fiscal policy can more efficiently achieve similar short-run distributional objectives as exchange rate management.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 9272

Classification and Topics

• Classification: Wirtschaft ; Aggregate Factor Income Distribution ; Monetary Policy ; Central Banks and Their Policies ; Open Economy Macroeconomics
• Subject: monetary policy rules ; exchange rate management ; interest rate smoothing ; distributional effects ; emerging markets ; financial frictions ; inflation targeting

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Prasad, Eswar ; Zhang, Boyang
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/114154
• Last update: 10.03.2025, 11:42 AM CET