1,721,177 research outputs found
Inflation Targeting in Emerging Market Economies
Full text linkThis paper assesses inflation targeting in emerging market economies (EMEs), and develops applied prescriptions for the conduct of monetary policy and inflation-targeting design in EMEs. We verify that EMEs have faced more acute trade-offs - higher output and inflation volatility - and worse performance than developed economies. These results stem from more pronounced external shocks, lower credibility, and lower level of development of institutions in these countries. In order to improve their performance, we recommend high levels of transparency and communication with the public and the development of more stable institutions. At an operational level, we propose a procedure that a central bank under inflation targeting can apply and communicate when facing strong supply shocks, and suggest a monitoring structure for an inflation-targeting regime under an IMF program.
Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences
Full text linkPolicy Responses to External Shocks: The Experiences of Australia, Brazil and Chile
Full text linkOpen economies, particularly emerging markets and commodity-intensive economies, deal with large external shocks. Interestingly enough, policy reactions and policy set-ups may dampen or amplify the consequences of these shocks, affecting the magnitude of the shock. This paper revisits the recent experience of policy frameworks and reactions in three countries: Australia, Brazil and Chile. In particular, we analyse and evaluate alternative policy set-ups and policy reactions to the Asian crisis in the period 1997-98, and to the lower world growth and higher risk aversion in 2001-2002.
Inflation Targeting in Brazil: Constructing Credibility under Exchange Rate Volatility
Full text linkThis paper assesses the challenges faced by the inflation-targeting regime in Brazil. The confidence crisis in the future performance of the Brazilian economy and the increase in risk aversion in international markets were responsible for a sudden stop of capital inflows in 2002 that caused a significant depreciation of the exchange rate. The inflation-targeting framework has played a critical role in macroeconomic stabilization. We stress two important challenges: construction of credibility and exchange rate volatility. The estimations indicate the following results: i) the inflation targets have worked as an important coordinator of expectations; ii) the Central Bank has reacted strongly to inflation expectations; iii) there has been a reduction in the degree of inflation persistence; and iv) the exchange rate pass-through for "administered or monitored" prices is two times higher than for "market" prices.
Inflation Targeting in Brazil: Constructing Credibility Under Exchange Rate Volatility
Full text linkSpeculative Attacks on Debts and Optimum Currency Area: A Welfare Analysis
Full text linkResorting to an extension of the debt crisis model of Cole and Kehoe (JIE 1996), we evaluate financial aspects of an optimum currency area. Our focus is to appraise the welfare of a country, which belongs to a monetary union and might suffer a speculative attack on its public debt. A default may be avoided by an inflation tax on common-currency debt, but this decision depends on majority voting and have costs associated with it. Moreover, the model considers symmetry between national and central governments' decisions about inflation and also describes the loss in international bankers' confidence towards one country being passed on to another. One of our results is that, for a country with low weight in the voting system, common-currency regime is superior in terms of expected welfare to dollarization and may be a better choice than the local-currency one, as the central bank under the latter regime undergoes some political influence from its government.
Bank Competition, Agency Costs and the Performance of the Monetary Policy
Full text linkThis paper extends the general equilibrium literature on bank competition in order to evaluate its role on the performance of the monetary policy. A new formulation of a financial contract taking into consideration both market power by banks as well as costly state verification is proposed here. Numerical simulations with the model economy parameterized to the Brazilian case are performed. Two cases are examined: One in which the banking sector is perfectly competitive and the other one when banks have market power. The main conclusions of the paper are the following: (1) Greater competition in the loan market enhances the response of the real economy to an interest rate shock; (2) Increased competition and/or a more efficient verification technology reduce the reaction of both the default rate and of the bank interest spread to an interest rate shock; and (3) The influence of the verification technology in the economy's dynamic response is greater when banks operate under perfect competition.
Comment on Market Discipline and Monetary Policy by Carl Walsh
Full text linkThis paper aims at correcting flaws in the way expectations are set in a paper by Walsh (2000) in order to assess with precision the impact of complex market rigidities and market expectations in the optimal choices of inflation in a monetary game between society and central bankers. After setting the expectations right, one of the results achieved indicates that the optimal inflation under any type of central banker is higher than that obtained in the original paper, suggesting that the time inconsistency phenomenon plays a more important role in explaining an inflationary bias than originally interpreted by Walsh (2000). However, if society organizes itself towards shorter tenure wage contracts, inflation will be lower. The results obtained for the output gap of the economy also differ from those achieved by Walsh in the sense that a central banker who is highly committed to previously announced inflation targets will have more opportunities to generate output growth above equilibrium rates and still commit. Finally, the stability of the premises regarding the contractual structure of the economy proposed by Walsh is tested under a game theoretic approach. The outcome of the test is that stability can be guaranteed only under strong assumptions and high symmetry in the sectoral distribution of firms. By using a social welfare function in which price surprises in any direction lead to welfare loss, the results indicate that society is better off by choosing longer tenure wage contracts, moving away from shorter tenure ones, at the cost of higher inflation.
Inflation Targeting in Emerging Market Economies
Full text linkThis paper assesses inflation targeting in emerging market economies (EMEs), and develops applied prescriptions for the conduct of monetary policy and inflation-targeting design in EMEs. We verify that EMEs have faced more acute trade-offs higher output and inflation volatility and worse performance than developed economies. These results stem from more pronounced external shocks, lower credibility, and lower level of development of institutions in these countries. In order to improve their performance, we recommend high levels of transparency and communication with the public and the development of more stable institutions. At an operational level, we propose a procedure that a central bank under inflation targeting can apply and communicate when facing strong supply shocks, and suggest a monitoring structure for an inflation-targeting regime under an IMF program.
Out-Of-The_Money Monte Carlo Simulation Option Pricing: the join use of Importance Sampling and Descriptive Sampling
Full text linkAs in any Monte Carlo application, simulation option valuation produces imprecise estimates. In such an application, Descriptive Sampling (DS) has proven to be a powerful Variance Reduction Technique. However, this performance deteriorates as the probability of exercising an option decreases. In the case of out of the money options, the solution is to use Importance Sampling (IS). Following this track, the joint use of IS and DS is deserving of attention. Here, we evaluate and compare the benefits of using standard IS method with the joint use of IS and DS. We also investigate the influence of the problem dimensionality in the variance reduction achieved. Although the combination IS+DS showed gains over the standard IS implementation, the benefits in the case of out-of-the-money options were mainly due to the IS effect. On the other hand, the problem dimensionality did not affect the gains. Possible reasons for such results are discussed.
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