Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/114154
Authors: 
Prasad, Eswar
Zhang, Boyang
Year of Publication: 
2015
Series/Report no.: 
IZA Discussion Papers 9272
Abstract: 
We develop a two-sector, heterogeneous-agent model with incomplete financial markets to study the distributional effects and aggregate welfare implications of alternative monetary policy rules in emerging market economies. Relative to inflation targeting, exchange rate management benefits households in the tradable goods sector but in the long run these households are worse off due to higher consumption volatility. A fixed exchange rate reduces the welfare of these households and aggregate welfare when the economy is hit by positive shocks to nontradable goods productivity or foreign interest rates. Fiscal policy can more efficiently achieve similar short-run distributional objectives as exchange rate management.
Subjects: 
monetary policy rules
exchange rate management
interest rate smoothing
distributional effects
emerging markets
financial frictions
inflation targeting
JEL: 
E25
E52
E58
F41
Document Type: 
Working Paper

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