A Quantitative Model for the Integrated Policy Framework

Download or read book A Quantitative Model for the Integrated Policy Framework written by Mr.Tobias Adrian and published by International Monetary Fund. This book was released on 2020-07-07 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.