蝌蚪网 Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Monetary Policy in Sudden Stop-Prone Economies
蝌蚪网 Journal: Macroeconomics
vol. 15,
no. 4, October 2023
(pp. 141–76)
Abstract
This paper proposes a parsimonious theory explaining the cyclicality of monetary policy in emerging countries in a model where access to foreign financing depends on the real exchange rate and the government lacks commitment. The discretionary monetary policy is procyclical to mitigate balance sheet effects originating from exchange rate depreciations during sudden stops. Committing to an inflation targeting regime is found to increase social welfare and reduce the frequency of financial crises despite increasing their severity. Finally, the ability to use capital controls induces a less procyclical discretionary monetary policy and delivers higher welfare gains than an inflation targeting regime.Citation
Coulibaly, Louphou. 2023. "Monetary Policy in Sudden Stop-Prone Economies." 蝌蚪网 Journal: Macroeconomics 15 (4): 141–76. DOI: 10.1257/mac.20200201Additional Materials
JEL Classification
- E31 Price Level; Inflation; Deflation
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- E52 Monetary Policy
- F31 Foreign Exchange
- F33 International Monetary Arrangements and Institutions
- F38 International Financial Policy: Financial Transactions Tax; Capital Controls