Monetary Rules for Emerging Market Economies

February 1, 2002

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Format: Chicago

Alessandro Rebucci, and Fabio Ghironi. Monetary Rules for Emerging Market Economies, (USA: International Monetary Fund, 2002) accessed December 3, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We compare the performance of a currency board, inflation targeting, and dollarization in a small, open developing economy with a liberalized capital account. We focus on the transmission of shocks to currency and country risk premia and on the role of fluctuations in premia in the propagation of other shocks. We calibrate our model on Argentina. The framework matches the second moments of key variables well. Welfare analysis suggests that dollarization is preferable to alternative regimes because it removes currency premium volatility. However, a currency board can match dollarization on welfare grounds if the central bank holds a sufficiently large stock of foreign reserves.

Subject: Bonds, Consumption, Currencies, Currency boards, Dollarization, Financial institutions, Foreign exchange, Monetary policy, Money, National accounts

Keywords: Argentina, Bonds, Business cycles, Consumption, Contents, Currencies, Currency Board regime, Currency boards, Currency bond, Currency discount factor, Currency holding, Currency premium, Currency risk, Discount factor, Dollarization, Emerging markets, Home currency price, Monetary rules, Money balance, Nominal money balance, Present discounted value, Risk premia, Welfare, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/034
Stock No:

WPIEA0342002
ISBN:

9781451845273
ISSN:

1018-5941

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