Inflation Targeting Lite' in Small Open Economies: The Case of Mauritius
IMF Working Papers, September 1, 2005
Source details
- Canonical URL
- Inflation Targeting Lite' in Small Open Economies: The Case of Mauritius
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Bibliographic details
- Published: September 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451861914.001
Summary findings
- The paper develops a new macrofinance model for small open economies to investigate Mauritius's experience with "inflation targeting lite" as described in Stone (2003).
- The "inflation targeting lite" monetary policy regime has been associated with a general reduction in inflation, principally through a reduction in inflation expectations.
- The credibility the Bank of Mauritius has established with its "inflation targeting lite" regime has allowed it to shift from an emphasis on exchange rate targeting towards inflation targeting.
- By estimating a model in which the yield curve is modeled explicitly, the authors obtain estimates of inflation expectations.
Methodology and model features
- A new macrofinance model tailored for small open economies is developed.
- The yield curve is modeled explicitly to derive estimates of inflation expectations.
Policy implications and analysis
- Establishing central bank credibility under a lite inflation-targeting framework can reduce inflation primarily by lowering inflation expectations.
- Credibility gains can facilitate a shift in monetary policy focus from exchange rate targeting to inflation targeting in a small open economy context.
Subject areas and keywords
- Subject: Exchange rates, Financial services, Foreign exchange, Inflation, Inflation targeting, Monetary policy, Prices, Real exchange rates, Yield curve
- Keywords: a number of monetary policy challenge, B. inflation targeting lite framework, BOM's monetary policy choice, BOM's monetary policy rule, exchange rate, Exchange rates, Global, high-frequency inflation report, Inflation, inflation expectation, inflation targeting, inflation-forecasting methodology, managed exchange rates, managed float, monetary policy objective, monetary policy rule, monetary policy setting, objectives of the BOM, open economy, Real exchange rates, small open economies, WP, Yield curve
Author and usage note
- Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
Source: IMF Working Papers — "Inflation Targeting Lite' in Small Open Economies: The Case of Mauritius", Working Paper No. 2005/172, September 1, 2005.