In?ation Bias, Real Exchange Rate, and Optimal
Monetary Policy in An Open Economy

ASIA unversity > 管理學院 > 財務金融學系 > 會議論文 > Item 310904400/63682

Please use this identifier to cite or link to this item: http://asiair.asia.edu.tw/ir/handle/310904400/63682

Title:	In?ation Bias, Real Exchange Rate, and Optimal Monetary Policy in An Open Economy
Authors:	Lin, Yo-Long
Contributors:	National Chi Nan University
Keywords:	Real exchange rate channel, in?ation bias, time consis- tent policy, coordination, and non-coordination.
Date:	2010
Issue Date:	2013-08-07 01:25:45 (UTC+0)
Publisher:	National Chi Nan University
Abstract:	It is well-known that there are unique challenges to design optimal monetary policy in an open economy since an e?ort by one country's expansionary policy to in?ate may depreciate its currency, which in- duces greater domestic in?ation through the real exchange rate chan- nel. Due to the existence of the above tempering e?ect of the real exchange rate channel, monetary authorities under non-coordination realize that lowering unemployment is more costly. With coordinated policy, however, policymakers are more likely to in?ate since the in- ?uence of tempering is removed. To investigate the impact of an ex- ogenous change in the natural rate of unemployment on the optimal time consistent monetary policy regarding in?ation bias, we present a two-country framework to compare the minimal-state-variable ra- tional expectations equilibria under three di?erent scenarios: coor- dination, non-coordination, and leader-follower regimes. The theory demonstrates that, under either coordination or non-coordination, a rise in one country's natural rate of unemployment will lead its own in?ation to increase if the e?ect of unanticipated in?ation surprises is stronger than the e?ect of the real exchange rate channel. Moreover, we suggest that the international interactions of the natural rate of unemployment and the MSV REE in?ation depends on the design of the exchange rate regime. Furthermore, the potential gains to coun- tries coordinating exchange rate policy depend on the relative degrees of in?ation bias between the two economies.
Relation:	2010中部學術財金研討會論文發表
Appears in Collections:	[財務金融學系] 會議論文

Files in This Item:

There are no files associated with this item.

Loading...