IMF Working Papers

A Model for Monetary Policy Analysis in Uruguay

By Rafael A Portillo, Yulia Ustyugova

July 23, 2015

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Rafael A Portillo, and Yulia Ustyugova. A Model for Monetary Policy Analysis in Uruguay, (USA: International Monetary Fund, 2015) accessed November 21, 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

Uruguay has recently reverted to a money targeting (MT) framework in the context of a disinflation strategy. We develop a quantitative model for monetary policy analysis incorporating money targets in the policy framework while also retaining a central role for interest rates in the transmission of policy. We use the model to show that tight financial conditions for a period may be necessary for inflation to converge to the middle of the target band. We also discuss various aspects of the MT framework. Two issues stand out. Excessive focus on hitting money targets can result in undesirable changes in the policy stance; while targets that incorporate elements of money demand forecasting are superior to targets that are excessively smooth or do not adjust for base effects.

Subject: Demand for money, Exchange rates, Financial services, Foreign exchange, Inflation, Money, Prices, Real exchange rates, Real interest rates

Keywords: Core CPI inflation, Demand for money, Exchange rate, Exchange rates, Forecasting, Global, Inflation, Inflation path, Inflation stabilization process, Inflation tradeoff, Interest rate target, Monetary policy, Monetary policy shock, Money demand, Money growth, Money target, Money Targeting, Output stabilization, Overnight interest rate, Peso interest rates, Real exchange rates, Real interest rates, WP, Yoy inflation dynamics

Publication Details

  • Pages:

    29

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2015/170

  • Stock No:

    WPIEA2015170

  • ISBN:

    9781513501703

  • ISSN:

    1018-5941

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