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Title:Monetary policy choices in emerging market economies: The case of high productivity growth PDF Logo
Authors:Natalucci, Fabio M.
Ravenna, Federico
Issue Date:2007
Series/Report no.:Working Papers, Santa Cruz Center for International Economics 08-04
Abstract:We develop a general equilibrium model of an emerging market economy where productivity growth differentials between tradable and non-tradable sectors result in an equilibrium appreciation of the real exchange ratethe so-called Balassa-Samuelson effect. The paper explores the dynamic properties of this economy and the welfare implications of alternative policy rules. We show that the real exchange rate appreciation limits the range of policy rules that, with a given probability, keep inflation and exchange rate within predetermined numerical targets. We also find that the Balassa-Samuelson effect raises by an order of magnitude the welfare loss associated with policy rules that prescribe active exchange rate management.
Subjects:Balassa-Samuelson effect
optimal monetary policy
exchange rate regimes
emerging markets
European Monetary Union
Document Type:Working Paper
Appears in Collections:Working Papers, Santa Cruz Institute for International Economics, UC Santa Cruz

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