Optimal Foreign Exchange Intervention in an In fl ation Targeting Regime : some cautionary tales ∗

  title={Optimal Foreign Exchange Intervention in an In fl ation Targeting Regime : some cautionary tales ∗},
  author={Matthew B. Canzoneri and Robert Cumby},
Devaluations and fiscal retrenchments coming from developed countries are buffeting less developed countries. Many emerging market countries have adopted inflation targeting as “best practice,” but now they are being advised to enhance their inflation targeting regimes with foreign exchange intervention. Here we use a DSGE model to tell some cautionary tales about this advice. A Taylor rule guides interest rate setting, while foreign exchange interventions are used as a second tool of monetary… CONTINUE READING


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