A Monetary Policy Rule for Jamaica

March 1, 2005

Preview Citation

Format: Chicago

Yan M Sun. A Monetary Policy Rule for Jamaica, (USA: International Monetary Fund, 2005) accessed November 24, 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

Since 1996, the Bank of Jamaica (BoJ) has sought to limit changes in the exchange rate for the Jamaican dollar in the context of its efforts to maintain low inflation. However, with a persistently high public sector deficit, real interest rates have remained generally high, which partly explains the slow pace of growth. This paper discusses an alternative monetary policy mix for achieving low variance for inflation and output through the prism of an empirical macroeconomic model. The simulation results suggest that a monetary policy mix that takes into account the impact of policy on both inflation and output achieves lower variance for inflation and output compared with the current policy mix, which tilts somewhat toward exchange rate stabilization. A case, therefore, can be made for the BoJ to move to a soft inflation targeting regime supported by fiscal consolidation.

Subject: Exchange rate policy, Exchange rates, Inflation, Inflation targeting, Real exchange rates

Keywords: Central bank, WP

Publication Details

Pages:

19
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2005/041
Stock No:

WPIEA2005041
ISBN:

9781451860603
ISSN:

1018-5941

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