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on Open Economy Macroeconomics |
| By: | Javier Bianchi; Louphou Coulibaly |
| Abstract: | What is the optimal monetary policy response to tariffs? This paper explores this question within an open-economy New Keynesian model and shows that the optimal monetary policy response is expansionary, with inflation rising above and beyond the direct effects of tariffs. This result holds regardless of whether tariffs apply to consumption goods or intermediate inputs, whether the shock is temporary or permanent, and whether tariffs address other distortions. |
| Keywords: | Tariffs; Inflation; Optimal monetary policy |
| JEL: | F41 E24 E44 E52 F13 |
| Date: | 2025–03–07 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedmwp:99705 |
| By: | Falk Laser (ABC economics, Berlin); Alexander Mihailov (Department of Economics, University of Reading); Jan Weidner (Federal Ministry for Economic Affairs and Energy, Berlin) |
| Abstract: | This paper fills a gap in the data by country -- and the corresponding comparative analysis of patterns and trends over the past quarter century -- in the composition of foreign exchange (FX) reserves and monetary gold in total international reserves, typically held by central banks. The monetary mystique since the 1980s and the related unwillingness of central banks to disclose the composition of their official reserves until about the turn of the millennium have made such an area of study a terra incognita to the wider profession. Our ambition with this paper is to cast light, also providing the data online, on the relative importance and reshufflings of the US Dollar, the Euro, the Japanese Yen, the British Pound, the Australian Dollar, the Canadian Dollar, the Chinese Yuan or Renminbi and monetary gold as international reserves in the recent times of crises, wars and geopolitical reconfigurations. We find that the US Dollar retains its dominance inherited from the Bretton Woods system, but the Euro and perhaps the Yuan may increase their reserve shares in the decade ahead, with a return to gold in official reserves already obvious since at least the Global Financial Crisis. Our rich and diverse dataset, and the insights from it we highlight, is the most up-to-date and comprehensive overview of the field, covering 7 major currencies and 64 countries in terms of FX shares, and a subset of 50 for which we also provide the gold shares, in an unbalanced panel since the late 1990s. |
| Keywords: | currency denomination of foreign exchange reserves, central banks, gold shares in total international reserves, visualizations by country and region, stylized facts and key insights |
| JEL: | F31 F32 F33 F41 F62 N40 |
| Date: | 2025–03–24 |
| URL: | https://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2025-01 |
| By: | Wamalwa, Peter |
| Abstract: | This paper aims to establish optimal response of monetary policy to output, inflation, and asset price volatility in small open economies of Kenya and Ghana. The paper estimates a monetary policy response function for inflation, asset prices, and output volatility developed from a dynamic stochastic general equilibrium model using quarterly data from 2000 to 2018. The analysis shows that monetary policy accord inflation greatest weight compared to output and asset prices. However, there are differences in the sensitivity of monetary policy across the economies, and hence price, output, and welfare outcomes. The prioritization of inflation stifles output growth more in Ghana than in Kenya due to high interest rate. Despite monetary policy prioritizing inflation in Ghana, average inflation is higher compared to Kenya. Results from dynamic optimization show that a consistent intervention in the economy to stabilize inflation, output, nominal exchange rate, and asset prices, achieves higher welfare. |
| Date: | 2024–04–11 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:428176bd-f18b-4894-b68b-8b8c212a4eb6 |