Stabilizing Inflation in Iceland

November 1, 2006

Preview Citation

Format: Chicago

Keiko Honjo, and Benjamin L Hunt. Stabilizing Inflation in Iceland, (USA: International Monetary Fund, 2006) accessed September 19, 2024

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

Summary

This paper provides some empirical estimates on how tightly is it feasible to control inflation in a very small open economy such as Iceland. Estimated macroeconomic models of Canada, Iceland, New Zealand, the United Kingdom, and the United States are used to derive efficient monetary policy frontiers that trace out the locus of the lowest combinations of inflation and output variability that are achievable under a range of alternative monetary policy rules. These frontiers illustrate that inflation stabilization is more challenging in Iceland than in other industrial countries primarily because of the relative magnitudes of the economic shocks.

Subject: Fiscal policy, Fiscal stance, Inflation, Inflation targeting, Output gap

Keywords: Inflation-output variability trade-off, WP

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/262
Stock No:

WPIEA2006262
ISBN:

9781451865226
ISSN:

1018-5941

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