عبور از طریق نرخ ارز ناقص و قواعد سیاست پولی ساده

This paper investigates the performance of various monetary policy rules in an open economy with incomplete exchange rate pass-through. Implementing monetary policy through an exchange rate augmented policy rule does not improve social welfare compared to using an optimized Taylor rule, irrespective of the degree of pass-through. A direct exchange rate response improves welfare only if the other reaction coefficients, on inflation and output, are sub-optimal. However, an indirect exchange rate response, through a policy reaction to Consumer Price Index (CPI) inflation rather than to domestic inflation, is welfare enhancing. This result is independent of whether society values domestic or CPI inflation stabilization.

In a small open economy, where the exchange rate influences inflation and output via import prices and relative prices, the exchange rate will transmit monetary policy in addition to the traditional (i.e., closed economy) interest rate channel. If the exchange rate contains information about, for example, inflationary impulses, the policy maker might improve social welfare by extending her simple monetary policy rule to include a direct reaction to the exchange rate. The reason for this is multifaceted; first, augmenting the policy rule with an exchange rate term does, to some extent, internalize the ‘total’ effects interest rate adjustments have on the economy, since movements in the interest rate (i.e., the policy instrument) also influence the exchange rate. Hence, there might be an informational advantage to such a policy rule, measuring the overall position of the policy (see, e.g., Ball, 1999). Second, a policy rule that includes an exchange rate reaction is less restrictive than a rule that just contains a response to the result of the exchange rate movement (i.e., subsequent changes in inflation and output). The exchange rate augmented rule incorporates a direct feedback from the inflationary impulse (i.e., the cause of instability), which implies a possibility to quickly adjust the interest rate and offset the exchange rate effects. This might, consequently, reduce the sub-optimality of the simple policy rule. Third, if a financial disturbance is the cause underlying an exchange rate misalignment, a direct exchange rate reaction may prevent such shocks to have destabilizing effects on the real side of the economy (see Cecchetti et al., 2000). Prior literature analyzing open economies and simple monetary policy rules has explored a broad set of exchange rate augmented policy rules, without attaining complete consensus of whether or not it is beneficial to include some feedback from an exchange rate variable in the central bank's instrument rule.1 The purpose of this paper is to study and describe an appropriate simple policy rule in an open economy with incomplete exchange rate pass-through. In particular, the analysis focuses on the importance of the degree of pass-through. If the open economy-policy maker implements her policy through an instrument rule, should the nominal or real exchange rate be incorporated into this rule, and is this affected by whether the exchange rate pass-through is incomplete? That is, can inclusion of an exchange rate response among the policy maker's reactions mitigate the sub-optimality of the instrument rule? The analysis is pursued in a simple aggregate demand–aggregate supply model, where incomplete exchange rate pass-through is included in the model via nominal import price rigidities. This, consequently, implies short-run deviations from the law of one price. The main results obtained in the paper are as follows: (i) the social welfare improvement of incorporating an exchange rate term in the fully optimized policy rule is practically zero, irrespective of the degree of pass-through. However, adding a real exchange rate term to the non-optimized, Taylor (1993) rule does enhance social welfare somewhat, since it reduces the sub-optimality of the overall policy response. (ii) An indirect exchange rate response, attained through a policy reaction to CPI inflation rather than domestic inflation, is welfare enhancing. This result holds independent of the degree of pass-through. Moreover, this result is not contingent upon society's preferences for CPI inflation stabilization or domestic inflation stabilization. In Section 2, the economic model as well as three different exchange rate augmented policy rules are presented. These simple rules incorporate either a nominal or a real exchange rate term, in order to take advantage of any latent exchange rate effects, as discussed above. Section 3 contains the optimal policy reactions and the stabilization outcome of the different policy rules in terms of social welfare. Robustness issues are discussed in Section 4, and lastly some conclusions are provided in Section 5.

This paper analyzes the performance of various open economy-policy rules within a forward-looking aggregate supply–aggregate demand model, adjusted for incomplete exchange rate pass-through. The results show that policy rules with direct exchange rate reactions only yield marginal improvements relative to an optimized Taylor rule. Neither nominal, nor real, exchange rate responses enhance stabilization of the economy. Given optimized policy reactions to inflation and output, there does not seem to be any sizeable welfare improvements from using exchange rate augmented rules, irrespective of the degree of pass-through. However, an indirect, or implicit, exchange rate response is welfare improving. A policy rule responding to CPI inflation does better in social welfare terms than a rule based on domestic inflation, in all pass-through cases. The inherent exchange rate reaction included in the CPI inflation response appears to be one of the reasons why a direct exchange rate response is redundant. This result is not contingent upon social preferences for either CPI inflation stabilization or domestic inflation stabilization. Consequently, in this model, it is better for the policy maker to base her policy rule on CPI inflation, since this induces lower exchange rate volatility, which, in turn, also reduces domestic inflation variability. The only case where social welfare improves from inclusion of a direct exchange rate reaction is when a real exchange rate response is added to the non-optimized Taylor rule with standard reaction coefficients on inflation, output, and the lagged interest rate (i.e., 1.5, 0.5, and 0.8, respectively). Adding a real exchange rate response to this Taylor rule makes the interest rate adjustment somewhat more aggressive. This reduces the sub-optimality of the resulting overall policy reaction, which thus enhances welfare. The exchange rate reaction, as well as the welfare gain, is increasing in the degree of pass-through. Consequently, an exchange rate response can be a substitute for optimizing the Taylor rule coefficients, but once these other policy responses have been optimized there are no additional welfare gains from inclusion of an exchange rate term in the policy rule.