Monetary policy conduct: A hybrid framework

Douch, Mohamed and Essadam, Naceur (2008): Monetary policy conduct: A hybrid framework.

Abstract

This paper compares the capability of interest rate rules, namely, inflation targeting (IT), price-level targeting (PT) and a combination of the two regime in a hybrid rule (HT) to improve social welfare in a small-open-economy, DSGE-based, New-Keynesian model. Allowing for some inflation inertia, we develop a small-open-economy version of the Calvo sticky-price model to investigate the relative ability of IT, PT and HT to minimize the variability in domestic ination and the output gap. Our analyses show that hybrid targeting outperforms other specifications and produces quantitatively good results, compared to those regimes that target only price levels or inflation rates.

• Item Type: MPRA Paper
• Language: English
• Keywords: Small-Open Economy, Monetary Policy, Hybrid Targeting
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy

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