scholarly journals Exchange Rate Misalignment and External Imbalances: What is the Optimal Monetary Policy Response?

2020 ◽  
pp. 01-45
Author(s):  
Giancarlo Corsetti ◽  
◽  
Luca Dedola ◽  
Sylvain Leduc ◽  
◽  
...  
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Policy Response ◽  
Optimal Monetary Policy ◽  
External Imbalances ◽  
Exchange Rate Misalignment

scholarly journals RESPON KEBIJAKAN MONETER YANG OPTIMAL DI INDONESIA: The State-Contingent Rule?

2008 ◽  
Vol 10 (4) ◽  
Author(s):  
Solikin M. Juhro
Keyword(s):  
Monetary Policy ◽  
Structural Changes ◽  
Structural Model ◽  
Vector Autoregression ◽  
Policy Response ◽  
Optimal Monetary Policy ◽  
Cointegrating Vector ◽  
Long Run ◽  
Policy Variable ◽  
Short Run

By developing a long-run macro structural model, The Structural Cointegrating Vector Autoregression (VAR), the optimality principle of monetary policy response in Indonesia is formulated. It accommodates not only long-run policy response and short-run dynamic errorcorrection mechanism, but also specific shocks emerged due to structural changes in the economy. In that context, the generated policy response basically reflects the optimal response of a “state-contingent rule”, different from common simple policy rules, such as Taylor rule and McCallum rule. This study captures several important aspects related to the implementation of “state-contingent rule” as an optimal monetary policy in Indonesia, namely: (i) the superiority of interest rate as a policy variable, or an operational target, against monetary base, (ii) the identification of monetary policy lag which is estimated averagely one-and-a half year, and (iii) the sub optimality of central bank monetary policy response, attributed by an over tight or loose policy response.JEL Classification: C32, E52Keywords: Kebijakan Moneter di Indonesia, Respon Kebijakan Moneter, Structural Cointegration Vector Autoregression(VAR).

scholarly journals Optimal monetary policy in a model of vertical production and trade with reference currency

2018 ◽  
Vol 20 (1) ◽  
Author(s):  
Liutang Gong ◽  
Chan Wang ◽  
Heng-Fu Zou
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Nominal Exchange Rate ◽  
Intermediate Goods ◽  
Optimal Monetary Policy ◽  
Monetary Cooperation ◽  
Monetary Authorities ◽  
Solution Methods ◽  
First Time ◽  
Vertical Production And Trade

Abstract This paper examines optimal monetary policy rules in a model of vertical production and trade with reference currency. As evidenced by empirical findings, we assume that final-goods prices are sticky, but intermediate-goods prices are flexible. We find that even if intermediate-goods prices are flexible, monetary authorities need to respond to the shocks at the stage of intermediate-goods production. We also find that, when a shock occurs at the stage of final-goods production, monetary responses are independent of the expenditure share of final-goods producers on intermediate goods. For the first time in the literature, our model gives a condition under which both countries are willing to participate in monetary cooperation. Thus the gains from cooperation are real. In addition, we compare the volatility of the nominal exchange rate in Nash case with that in cooperative case, and compare the volatility of the nominal exchange rate in our model with that in a model without vertical production and trade as well. We also extend the model to consider a case of dual price stickiness. We find that the change in solution methods completely alters the conclusions of the model.

Uninsured Unemployment Risk and Optimal Monetary Policy in a Zero-Liquidity Economy

2020 ◽  
Vol 12 (2) ◽  
pp. 241-283 ◽  
Author(s):  
Edouard Challe
Keyword(s):  
Monetary Policy ◽  
Optimal Policy ◽  
Aggregate Demand ◽  
Household Wealth ◽  
Policy Response ◽  
Optimal Monetary Policy ◽  
The Face ◽  
Unemployment Risk ◽  
Effect Of Monetary Policy ◽  
Redistributive Effect

I study optimal monetary policy in a sticky-price economy wherein households precautionary-save against uninsured, endogenous unemployment risk. In this economy greater unemployment risk raises desired savings, causing aggregate demand to fall and feed back to greater unemployment risk. This deflationary spiral is constrained inefficient and calls for an accommodative monetary policy response: after a contractionary aggregate shock the policy rate should be kept significantly lower and for longer than in the perfect-insurance benchmark. For example, the usual prescription obtained under perfect insurance of a hike in the policy rate in the face of a bad supply (i.e., productivity or cost-push) shock is easily overturned. The optimal policy breaks the deflationary spiral and takes the dynamics of the imperfect-insurance economy close to that of the perfect-insurance benchmark. These results are derived in an economy with zero asset supply (zero liquidity) and are thus independent of any redistributive effect of monetary policy on household wealth. (JEL E21, E24, E31, E52, G51)

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