{
  "title": "Interest Rate Targeting in a Small Open Economy: The Predetermined Exchange Rates Case",
  "publication": "IMF Working Papers, March 1, 1990",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/interest-rate-targeting-in-a-small-open-economy-the-predetermined-exchange-rates-case-3044",
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  "summary": "An important hurdle in analyzing interest rate targeting is that standard models usually lead to price level or inflation rate indeterminacy. This paper develops a simple framework in which such problems do not arise because the bonds whose interest rate is controlled provide liquidity services.",
  "sections": [
    {
      "heading": "Summary and analytical framework",
      "content": "- Standard models of interest rate targeting usually lead to price level or inflation rate indeterminacy.\n- The paper develops a simple framework in which indeterminacy does not arise because the bonds whose interest rate is controlled provide liquidity services.\n- The framework is applied to examine interest rate targeting in a small open economy under predetermined exchange rates."
    },
    {
      "heading": "Key findings",
      "content": "- A permanent increase in the interest rate has no real effects.\n- A temporary increase in the interest rate leads to:\n  - higher consumption, and\n  - a current account deficit that worsens over time."
    },
    {
      "heading": "Model implications and interpretation",
      "content": "- Liquidity services provided by the controlled-interest-rate bonds are central to eliminating price level or inflation indeterminacy present in standard models.\n- The distinction between permanent and temporary interest rate changes is crucial for real macroeconomic outcomes under predetermined exchange rates."
    },
    {
      "heading": "Publication and descriptive metadata",
      "content": "- Authors: Guillermo Calvo; Carlos A. Végh Gramont\n- Date: March 1, 1990\n- Series: Working Paper No. 1990/021\n- Issue: 021\n- Volume: 1990\n- Pages: 32\n- DOI: https://doi.org/10.5089/9781451921427.001\n- Stock No: WPIEA0211990\n- ISBN: 9781451921427\n- ISSN: 1018-5941\n- Also published in Staff Papers, Vol. 37, No. 4, December 1990\n- Subject: Consumption, Exchange rates, Inflation, Interest rate policy, Real interest rates\n- Keywords: nominal interest rate, WP\n\nInterest Rate Targeting in a Small Open Economy: The Predetermined Exchange Rates Case, IMF Working Papers, March 1, 1990.\n\n---\n\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/interest-rate-targeting-in-a-small-open-economy-the-predetermined-exchange-rates-case-3044"
    }
  ],
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    "Authors: Guillermo Calvo, Carlos A. Végh Gramont",
    "Published: March 1, 1990",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451921427.001",
    "Standard models of interest rate targeting usually lead to price level or inflation rate indeterminacy.",
    "The paper develops a simple framework in which indeterminacy does not arise because the bonds whose interest rate is controlled provide liquidity services.",
    "The framework is applied to examine interest rate targeting in a small open economy under predetermined exchange rates.",
    "A permanent increase in the interest rate has no real effects.",
    "A temporary increase in the interest rate leads to:",
    "Liquidity services provided by the controlled-interest-rate bonds are central to eliminating price level or inflation indeterminacy present in standard models.",
    "The distinction between permanent and temporary interest rate changes is crucial for real macroeconomic outcomes under predetermined exchange rates.",
    "Authors: Guillermo Calvo; Carlos A. Végh Gramont",
    "Date: March 1, 1990",
    "Series: Working Paper No. 1990/021",
    "Issue: 021",
    "Volume: 1990",
    "Pages: 32",
    "DOI: https://doi.org/10.5089/9781451921427.001",
    "Stock No: WPIEA0211990",
    "ISBN: 9781451921427",
    "ISSN: 1018-5941",
    "Also published in Staff Papers, Vol. 37, No. 4, December 1990",
    "Subject: Consumption, Exchange rates, Inflation, Interest rate policy, Real interest rates",
    "Keywords: nominal interest rate, WP"
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