IMF Working Papers

Explicit and Implicit Targets in Open Economies

By Silvia Sgherri

September 1, 2005

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Silvia Sgherri. Explicit and Implicit Targets in Open Economies, (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

Under a flexible inflation targeting regime, should policymakers avoid any reaction to movements in the foreign exchange market? Using data for six advanced open economies explicitly targeting inflation, the paper examines empirically whether real exchange rate disequilibria systematically affect the conduct of monetary policy. Estimates indicate that monetary policy responses in inflation-targeting, open economies have changed significantly, as the institutional framework for the conduct of monetary policy has evolved. In particular, an explicit target for core inflation and a greater use of the expectation channel of monetary policy appear to be key features of the newest policy framework. In this context, central banks are unlikely to react to regular fluctuations in the exchange rate.

Subject: Consumer price indexes, Exchange rates, Foreign exchange, Inflation, Inflation targeting, Monetary policy, Prices, Real exchange rates

Keywords: Australia and New Zealand, Consumer price indexes, Exchange rate misalignment, Exchange rate response, Exchange rates, Inflation, Inflation targeting, Inflation-targeting open economies, Interest rate change, Interest rate movement, Interest rate reaction function, Interest rate response, Interest rate rule, Interest rate rules, Monetary policy, Monetary policy response, Mover accent, Output gap, Output gap forecast, Reaction function, Real exchange rates, Responses to deviation, WP

Publication Details

  • Pages:

    27

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2005/176

  • Stock No:

    WPIEA2005176

  • ISBN:

    9781451861952

  • ISSN:

    1018-5941