Arbeitspapier
Optimal monetary policy delegation under incomplete exchange rate pass-through
The central bank's optimal objective function is analyzed in a small open economy model allowing for incomplete exchange rate pass-through. The results indicate that social welfare can only be marginally improved by including an explicit exchange-rate term in the delegated objective function, irrespective of the degree of pass-through. An implicit response to the exchange rate, through Consumer Price Index (CPI) inflation targeting is, however, beneficial. Welfare can, moreover, be enhanced by appointing a central banker with a greater preference for interest rate smoothing than that of the society, as a result of surpassing some of the stabilization bias arising under a discretionary policy. Consequently, there are welfare gains from monetary policy inertia. The optimal degree of interest rate smoothing is increasing in the degree of pass-through.
- Sprache
-
Englisch
- Erschienen in
-
Series: SSE/EFI Working Paper Series in Economics and Finance ; No. 477
- Klassifikation
-
Wirtschaft
Monetary Policy
Central Banks and Their Policies
Open Economy Macroeconomics
- Thema
-
Exchange rate pass-through
inflation targeting
interest rate inertia
monetary policy
small open economy
Geldpolitik
Diskretionäre Politik
Exchange Rate Pass-Through
Offene Volkswirtschaft
Wohlfahrtseffekt
Theorie
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Adolfson, Malin
- Ereignis
-
Veröffentlichung
- (wer)
-
Stockholm School of Economics, The Economic Research Institute (EFI)
- (wo)
-
Stockholm
- (wann)
-
2001
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:42 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Adolfson, Malin
- Stockholm School of Economics, The Economic Research Institute (EFI)
Entstanden
- 2001