Open economy inflation targeting arrangements and monetary policy rules

Cavoli, Tony; Rajan, Ramkishen S.

doi:10.1108/17538250810903800

Cited by 19 publications

(16 citation statements)

References 30 publications

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“…This is aptly summarized in Goyal (2014) One way to deal with this issue is to adopt an open economy inflation targeting arrangement, whereby India can not only maintain exchange rate flexibility but also allow for targeting inflation. This arrangement has been strongly promoted by the IMF and other observers (Cavoli and Rajan, 2008). The exchange rate may not be included in the monetary policy rule directly.…”

Section: Conclusion and Policy Recommendationsmentioning

confidence: 98%

Exchange rate changes and inflation in India: What is the extent of exchange rate pass-through to imports?

Yanamandra

2015

Economic Analysis and Policy

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Section: Conclusion and Policy Recommendationsmentioning

confidence: 98%

Exchange rate changes and inflation in India: What is the extent of exchange rate pass-through to imports?

Yanamandra

2015

Economic Analysis and Policy

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“…As a matter of principle, a flexible countercyclical monetary policy can be practiced with inflation targeting (Ghironi & Rebucci, 2000;Mishkin, 2002;Cavoli & Rajan, 2008;Cristadoro & Veronese, 2011;Levine, 2012).…”

Section: The Debatementioning

confidence: 99%

Does Money Matter in Africa? New Empirics on Long- and Short-Run Effects of Monetary Policy on Output and Prices

Asongu

2013

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in January 2013Abstract Purpose -While in developed economies, changes in monetary policy affect real economic activity in the short-run but only prices in the long-run, the question of whether these tendencies apply to developing countries remains open to debate. In this paper, we examine the effects of monetary policy on economic activity using a plethora of hitherto unemployed financial dynamics in inflation-chaotic African countries for the period 1987-2010.Design/methodology/approach -VARs within the frameworks of VECMs and simple Granger causality models are used to estimate the long-run and short-run effects respectively. A battery of robustness checks are also employed to ensure consistency in the specifications and results.Findings -But for slight exceptions, the tested hypotheses are valid under monetary policy independence and dependence. Hypothesis 1: Monetary policy variables affect prices in the long-run but not in the short-run. For the first-half (long-run dimension) of the hypothesis, permanent changes in monetary policy variables (depth, efficiency, activity and size) affect permanent variations in prices in the long-term. But in cases of disequilibriums only financial dynamic fundamentals of depth and size significantly adjust inflation to the cointegration relations. With respect to the second-half (short-run view) of the hypothesis, monetary policy does not overwhelmingly affect prices in the short-term. Hence, but for a thin exception Hypothesis 1 is valid. Hypothesis 2: Monetary policy variables influence output in the short-term but not in the long-term. With regard to the short-term dimension of the hypothesis, only financial dynamics of depth and size affect real GDP output in the short-run. As concerns the long-run dimension, the neutrality of monetary policy has been confirmed. Hence, the hypothesis is also broadly valid.Practical Implications -A wide range of policy implications are discussed. Inter alia: the long-run neutrality of money and business cycles, credit expansions and inflationary tendencies, inflation targeting and monetary policy independence implications. Country/regional specific implications, the manner in which the findings reconcile the ongoing debate, measures for fighting surplus liquidity, caveats and future research directions are also discussed.1 Simplice A. Asongu is Lead economist in the Research Department of the AGDI (asongus@afridev.org). 3Originality/value -By using a plet...

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“…On the contrary, a monetary expansionary policy that lowers the real exchange rate could boost demand for output by improving the competitiveness of a country's products in domestic and world markets (Starr, 2005). In the same vein, a flexible countercyclical monetary policy can be practiced with inflation targeting (Ghironi & Rebucci, 2000;Mishkin, 2002;Cavoli & Rajan, 2008;Cristadoro & Veronese, 2011;Levine, 2012).…”

Section: The Debatementioning

confidence: 99%

New empirics of monetary policy dynamics: evidence from the CFA franc zones

Asongu

2016

African Journal of Economic and Management Studies

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in January 2013Abstract Purpose -A major lesson of the EMU crisis is that serious disequilibria in a monetary union result from arrangements not designed to be robust to a variety of shocks. With the specter of this crisis looming substantially and scarring existing monetary zones, the present study has complemented existing literature by analyzing the effects of monetary policy on economic activity (output and prices) in the CEMAC and UEMOA CFA franc zones.Design/methodology/approach -VARs within the frameworks of VECMs and Granger causality models are used to estimate the long-run and short-run effects respectively. Impulse response functions are further used to assess the tendencies of significant Granger causality findings. A battery of robustness checks are also employed to ensure consistency in the specifications and results. Findings -Hypothesis 1:Monetary policy variables affect prices in the long-run but not in the short-run in the CFA zones (Broadly untrue). This invalidity is more pronounced in CEMAC (relative to all monetary policy variables) than in UEMOA (with regard to financial dynamics of activity and size). Hypothesis 2: Monetary policy variables influence output in the short-term but not in the long-run in the CFA zones. Firstly, the absence of co-integration among real output and the monetary policy variables in both zones confirm the long-term dimension of the hypothesis on the neutrality of money. The validity of its short-run dimension is more relevant in the UEMOA zone (with the exception of overall money supply) than in the CEMAC zone (in which only financial dynamics of 'financial system efficiency' and financial activity support the hypothesis).Practical Implications -(1) Compared to the CEMAC region, the UEMOA zone's monetary authority has more policy instruments for offsetting output shocks but fewer instruments for the management of short-run inflation. (2) The CEMAC region is more inclined to nontraditional policy regimes while the UEMOA zone dances more to the tune of traditional discretionary monetary policy arrangements. A wide range of policy implications are discussed. Inter alia: implications for the long-run neutrality of money and business cycles; implications for credit expansions and inflationary tendencies; implications of the findings to the ongoing debate; country-specific implications and measures of fighting surplus liquidity.1 Simplice A. Asongu is Lead economist in the Research Depar...

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Open economy inflation targeting arrangements and monetary policy rules

Cited by 19 publications

References 30 publications

Exchange rate changes and inflation in India: What is the extent of exchange rate pass-through to imports?

Exchange rate changes and inflation in India: What is the extent of exchange rate pass-through to imports?

Does Money Matter in Africa? New Empirics on Long- and Short-Run Effects of Monetary Policy on Output and Prices

New empirics of monetary policy dynamics: evidence from the CFA franc zones

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