DeFiPP Seminar
Exchange Rate Misalignment and External Imbalances: What is the Optimal Monetary Policy Response?
Date : 15/10/2020 16:00 - 15/10/2020 18:00
Lieu : via TEAMS
Orateur(s) : Giancarlo Corsetti
Organisateur(s) : Romain Houssa
Joint Macroeconomic Seminar co-organised by the National Bank of Belgium and Belgian Universities (KU Leuven, UAntwerpen, UCL, UGent, ULB, UNamur and VUB
Abstract : How should monetary policy respond to capital inflows that appreciate the currency, widen the current account deficit and cause domestic overheating? Using the workhorse open-macro monetary model, we derive a quadratic approximation of the utility-based global loss function in incomplete market economies, solve for the optimal targeting rules under cooperation and characterize the constrained-optimal allocation. The answer is sharp : the optimal monetary stance is contractionary if the exchange rate pass-through (ERPT) on import prices incomplete, expansionary if ERPT is complete - implying that misalignement and exchange rate volatility are higher in economies where icomplete pass through contains the effects of exchange rates on price competitiveness.
More information: DeFiPP Seminars
Contact :
Romain Houssa
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romain.houssa@unamur.be
Télecharger :
vCal