A Conceptual Model for the Integrated Policy Framework

By Suman S Basu, Emine Boz, Gita Gopinath, Francisco Roch, Filiz D Unsal

July 7, 2020

Preview Citation

Format: Chicago

Suman S Basu, Emine Boz, Gita Gopinath, Francisco Roch, and Filiz D Unsal. A Conceptual Model for the Integrated Policy Framework, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

In the Mundell-Fleming framework, standard monetary policy and exchange rate flexibility fully insulate economies from shocks. However, that framework abstracts from many real world imperfections, and countries often resort to unconventional policies to cope with shocks, such as COVID-19. This paper develops a model of optimal monetary policy, capital controls, foreign exchange intervention, and macroprudential policy. It incorporates many shocks and allows countries to differ across the currency of trade invoicing, degree of currency mismatches, tightness of external and domestic borrowing constraints, and depth of foreign exchange markets. The analysis maps these shocks and country characteristics to optimal policies, and yields several principles. If an additional instrument becomes available, it should not necessarily be deployed because it may not be the right tool to address the imperfection at hand. The use of a new instrument can lead to more or less use of others as instruments interact in non-trivial ways.

Subject: Balance of payments, Capital controls, Central bank policy rate, Currency markets, Exchange rates, Financial markets, Financial services, Foreign exchange, Housing, National accounts

Keywords: Capital control, Capital controls, Central bank policy rate, Currency markets, Exchange rate, Exchange rate flexibility, Exchange rates, Foreign exchange intervention, FX intervention, Global, Housing, Housing constraint, Housing sector, Interest rate, Land price, Macroprudential regulation, Monetary policy, Policy rate, Prudential tax, WP

Publication Details

Pages:

157
Volume:

---
DOI:

---
Issue:

---
Series:

Working Paper No. 2020/121
Stock No:

WPIEA2020121
ISBN:

9781513549729
ISSN:

1018-5941

FACTSHEETS

RESOURCES

TOPICS

Flagship Publications

Other Publications

IMF reports and publications by country

Regional Offices

All News

See Also

For Journalists

Press Center

RESOURCES

FLAGSHIPS

KEY SERIES

IMF NOTES

IMF Working Papers