Optimal Exchange Rate Stabilization in a Dollarized Economy with Inflation Targets
Por Batini, Nicoletta; Levine, Paul; Pearlman, Joseph
February 2008
Idioma: English
Keywords
- dollarized economies
- inflation-forecast-based rules
- managed exchange rates
- optimal monetary policy
Clasificación JEL:
- E37
- E52
- E58
Resumen:
We build a small open-economy model with partial dollarization–households hold wealth in domestic currency and a foreign currency as in Felices and Tuesta (2006). The degree of dollarization is endogenous to the extent of exchange rate stabilization by the central bank. We identify the optimal monetary policy response under com-mitment and discretion and assess the optimal degree of exchange rate stabilization inthis set up, drawing policy implications for countries that target inflation in economies of this kind.