Monetary Policy Research Papers

The conference we have enjoyed over the past two days underscores the strengths and interests of the researchers at the Cleveland Fed, and I plan to build on that foundation when I officially start my new job next week.Understanding inflation dynamics is of vital importance to central banks.

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Contractionary effects of devaluation are also far more important for developing countries, particularly the balance sheet effects that arise from currency mismatch.

The exchange rate was the favored nominal anchor for monetary policy in inflation stabilizations of the late 1980s and early 1990s.

Jeffrey Frankel January 2011 Abstract The characteristics that distinguish most developing countries, compared to large industrialized countries, include: greater exposure to supply shocks in general and trade volatility in particular, procyclicality of both domestic fiscal policy and international finance, lower credibility with respect to both price stability and default risk, and other imperfect institutions. Models of dynamic inconsistency in monetary policy and the need for central bank independence and commitment to nominal targets apply even more strongly to developing countries.

But because most developing countries are price-takers on world markets, the small open economy model, with nontraded goods, is often more useful than the two-country two-good model.

She assumed her role as president and CEO in June 2014.

I realize I have a very hard act to follow, but I am very grateful that Sandy has built such a fine institution.When businesses and consumers have confidence that the central bank is committed to 2 percent inflation over the longer run and will defend that target when inflation is either above or below it, they are more likely to look through temporary changes in inflation.This helps anchor inflation expectations at the target.Being explicit about the inflation objective reflects the FOMC’s desire to be transparent and communicate clearly to the public.But it also underscores the FOMC’s commitment to price stability.The participation of emerging markets in global finance is a major reason why they have by now earned their own large body of research, but it also means that they remain highly prone to problems of asymmetric information, illiquidity, default risk, moral hazard and imperfect institutions.Many of the models designed to fit emerging market countries were built around such financial market imperfections; few economists thought this inappropriate.As part of those principles, the statement established for the first time an explicit numerical goal for inflation over the longer run.The goal is 2 percent inflation, as measured by the year-over-year change in the price index for personal consumption expenditures, or PCE inflation.After the currency crises of 1994-2001, the conventional wisdom anointed Inflation Targeting as the preferred monetary regime in place of exchange rate targets.But events associated with the global crisis of 2007-09 have revealed limitations to the choice of CPI for the role of price index.

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