Cover -- Contents -- I. Introduction -- II. Uruguay: Monetary Policy in 2005-14 -- III. The Model -- A. Output and Real Interest Rates -- B. The Philips Curve -- C. Uncovered Interest Parity and Real Exchange Rate Dynamics -- D. Money Demand -- E. Monetary Policy -- F. The Setting of Money Targets -- G. Consistency between the Model and the MT Framework in Uruguay -- H. On the Role of Monetary Aggregates in the Model -- IV. Policy-Relevant Exercises -- A. Calibration -- B. Data -- C. Filtration Results -- Discussion -- D. Projection -- E. Money Targeting Analysis -- The Role of Target Adherence -- The Design of Money Targets -- V. Conclusions -- References
Summary
Uruguay has recently reverted to a money targeting (MT) framework in the context of a disinflation strategy. We develop a quantitative model for monetary policy analysis incorporating money targets in the policy framework while also retaining a central role for interest rates in the transmission of policy. We use the model to show that tight financial conditions for a period may be necessary for inflation to converge to the middle of the target band. We also discuss various aspects of the MT framework. Two issues stand out. Excessive focus on hitting money targets can result in undesirable changes in the policy stance; while targets that incorporate elements of money demand forecasting are superior to targets that are excessively smooth or do not adjust for base effects. --Abstract
Notes
"Western Hemisphere and Research Departments."
"July 2015."
Bibliography
Includes bibliographical references (pages 28-29)
Notes
Online resource; title from pdf title page (IMF.org Web site, viewed July 30, 2015)
