Dollarization of Liabilities , Net Worth Effects , and Optimal Monetary Policy

@inproceedings{Cspedes2001DollarizationOL,
  title={Dollarization of Liabilities , Net Worth Effects , and Optimal Monetary Policy},
  author={Luis Felipe C{\'e}spedes and Roberto Chang Rutgers University Andr{\'e}s Velasco},
  year={2001}
}
  • Luis Felipe Céspedes, Roberto Chang Rutgers University Andrés Velasco
  • Published 2001
We consider optimal interest rate policies in an open economy model with balance sheet effects à la Bernanke-Gertler (1989) and overlapping wage contracts à la Calvo (1983). The optimal “flexible inflation targeting” policy under discretion involves a floating exchange rate and partial reaction of home interest rates to external shocks. This policy yields higher welfare than a policy of strictly fixed nominal exchange rates. Other optimal inflation targeting policies under discretion also… CONTINUE READING
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