A Quantitative Model for the Integrated Policy Framework

Author/Editor:

Tobias Adrian ; Christopher J. Erceg ; Jesper Lindé ; Pawel Zabczyk ; Jianping Zhou

Publication Date:

July 7, 2020

Electronic Access:

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Summary:

Many central banks have relied on a range of policy tools, including foreign exchange intervention (FXI) and capital flow management tools (CFMs), to mitigate the effects of volatile capital flows on their economies. We develop an empirically-oriented New Keynesian model to evaluate and quantify how using multiple policy tools can potentially improve monetary policy tradeoffs. Our model embeds nonlinear balance sheet channels and includes a range of empirically-relevant frictions. We show that FXI and CFMs may improve policy tradeoffs under certain conditions, especially for economies with less well-anchored inflation expectations, substantial foreign currency mismatch, and that are more vulnerable to shocks likely to induce capital outflows and exchange rate pressures.

Series:

Working Paper No. 20/122

Subject:

Frequency:

regular

English

Publication Date:

July 7, 2020

ISBN/ISSN:

9781513549668/1018-5941

Stock No:

WPIEA2020122

Format:

Paper

Pages:

56

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