Unconventional monetary policy in a small open economy under inflation targeting regime

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216224%3A14560%2F17%3A00099556" target="_blank" >RIV/00216224:14560/17:00099556 - isvavai.cz</a>

Result on the web

<a href="http://fim2.uhk.cz/mme/conferenceproceedings/mme2017_conference_proceedings.pdf" target="_blank" >http://fim2.uhk.cz/mme/conferenceproceedings/mme2017_conference_proceedings.pdf</a>

DOI - Digital Object Identifier

—

Result language

angličtina

Original language name

Unconventional monetary policy in a small open economy under inflation targeting regime

Original language description

In this paper, we focus on consequences of unconventional monetary policy, namely, of interventions on foreign exchange (FX) market. In recent development of many economies, interest rate hit the zero lower bound, making traditional instrument of monetary policy unemployable. Depreciation of country’s currency and subsequent interventions on FX market therefore provide for an option for inflation targeting in small open economies. We use a New-Keynesian dynamic stochastic model of general equilibrium. The possibility of central bank’s interventions is modeled by adding a segment of FX dealers as a modified uncovered interest parity condition, according to Montoro´and Ortiz (2013). The model is then estimated on data of Czech economy. We then introduce non-linearities to otherwise linear model, providing a way to model constraints on variables. Constraint on interest rate is chosen to model the position of the economy at zero lower bound, whereas constraint on exchange rate is used to model commitment of central bank to keep exchange rate above certain value. Model is solved using toolbox of Dynare , which introduces a way of dealing with non-linear models, by assuming perfect foresight of agents. Finally, the results are assessed and correctness of unconventional monetary policy is evaluated.

Czech name

—

Czech description

—

Type

D - Article in proceedings

CEP classification

—

OECD FORD branch

50202 - Applied Economics, Econometrics

Project

—

Continuities

S - Specificky vyzkum na vysokych skolach

Publication year

2017

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Article name in the collection

35th International Conference Mathematical Methods in Economics MME 2017 Conference Proceedings

ISBN

9788074356780

ISSN

—

e-ISSN

—

Number of pages

6

Pages from-to

177-182

Publisher name

Faculty of Informatics and Management, University of Hradec Králové

Place of publication

Hradec Králové

Event location

Hradec Králové

Event date

Jan 1, 2017

Type of event by nationality

WRD - Celosvětová akce

UT code for WoS article

000427151400031