Séminaires de recherche


Inflation-Targeting and Foreign Exchange Interventions in Emerging Economies

Mardi | 2014-01-21
salle des thèses


Are emerging economies implementing inflation targeting (IT) with a perfectly flexible exchange-rate arrangement, as developed economies do, or have these countries developed their own IT framework? This paper offers a new method for assessing exchange-rate policies that combines the use of “indicator countries”, providing an empirical definition of exchange-rate flexibility or rigidity, and clustering through Gaussian mixture estimates in order to identify countries’ de facto regimes. By applying this method to 19 inflationtargeting emerging economies, I find that the probability of those countries having a perfectly flexible arrangement as developed economies do is 52%, while the probability of having a managed float system, obtained through foreign exchange market intervention, is 28%, and that of having a rigid exchange-rate system (similar to those of pegged currencies) is 20%. The results also provide evidence of two different monetary regimes under inflation targeting: flexible IT when the monetary authorities handle only one tool, the interest rate, prevailing in ten economies, and hybrid IT when the monetary authorities add foreign exchange interventions to their toolbox, prevailing in the remaining nine economies.

Monetary Policy and Financial Stability Objectives: in Search of Trade-offs

Mercredi | 2014-01-15


The concern for fi nancial stability has gained increasing interest for monetary policy making. In the aftermath of the 2008 global financial crisis, it has been argued that monetary policy should prevent or dampen raising fi nancial risk by responding actively to fi nancial imbalances. This paper investigates the extent to which central bank’s reaction to fi nancial instability may be incompatible with its other macroeconomic stability objectives. The analytical framework relies on a New Keynesian model with an endogenous fi nancial bubble, where it is assumed that tightening monetary policy can dampen raising financial risk. The paper concludes that, the monetary policy framework in which the central bank is directly concerned with fi nancial issues when setting the short term interest rate can generate trade-o ffs between real (inflation and output) and financial stability.