Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142555
Authors: 
Abo-Zaid, Salem M.
Year of Publication: 
2009
Series/Report no.: 
EERI Research Paper Series 23/2009
Abstract: 
This paper studies monetary policy rules in a small open economy with Inflation Targeting, incomplete pass-through and rigid nominal wages. The paper shows that, when nominal wages are fully flexible and pass-through is low to moderate, the monetary authority should target the consumer price index (CPI) rather than the Domestic Price Index (DPI). When pass-through is high, an economy with high degrees of nominal wage rigidity and wage indexation should either target the CPI or fully stabilize nominal wages. The results of the paper suggest that, by committing to a common monetary policy in a common-currency area, some countries may not be following the right monetary policy rules.
Subjects: 
Monetary policy rules
Inflation Targeting
Consumer Price Index
Domestic Price Index
Exchange rate pass-through
Nominal wage rigidity
Open economy
JEL: 
E31
E52
E58
E61
F31
Document Type: 
Working Paper

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