A Quantitative Model for the Integrated Policy Framework

Jesper Lindé, Tobias Adrian, Christopher Erceg, Pawel Zabczyk and Jianping Zhou

No 15065, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Many central banks have relied on a range of policy tools, including foreign exchange intervention (FXI) and capital flow management tools (CFMs), to mitigate the effects of volatile capital flows on their economies. We develop an empirically-oriented New Keynesian model to evaluate and quantify how using multiple policy tools can potentially improve monetary policy tradeoffs. Our model embeds nonlinear balance sheet channels and includes a range of empirically-relevant frictions. We show that FXI and CFMs may improve policy tradeoffs under certain conditions, especially for economies with less well-anchored inflation expectations, substantial foreign currency mismatch, and that are more vulnerable to shocks likely to induce capital outflows and exchange rate pressures.

Keywords: Monetary policy; Fx intervention; Capital flow measures; Emerging economies; Dsge model (search for similar items in EconPapers)
JEL-codes: C54 E52 E58 F41 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-opm
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Citations: View citations in EconPapers (24)

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Working Paper: A Quantitative Model for the Integrated Policy Framework (2020)
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