Inflation Targeting Lite' in Small Open Economies: The Case of Mauritius
Volume/Issue:
Volume 2005
Issue 172
Publication date: September 2005
ISBN: 9781451861914
$20.00
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Topics covered in this book
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Banks and Banking , Inflation , Money and Monetary Policy , WP , exchange rate , open economy , inflation targeting , small open economies , managed exchange rates , monetary policy rule , a number of monetary policy challenge , inflation expectation , high-frequency inflation report , BOM's monetary policy choice , objectives of the BOM , inflation-forecasting methodology , managed float , monetary policy setting , BOM's monetary policy rule , monetary policy objective , B , inflation targeting lite framework , Inflation , Real exchange rates , Yield curve , Exchange rates , Global
Summary
This paper develops a new macrofinance model for small open economies, allowing the investigation of Mauritius's experience with 'inflation targeting lite' as described in Stone (2003). It finds that this monetary policy regime has been associated with a general reduction in inflation, principally through a reduction in inflation expectations. The credibility the Bank of Mauritius has established with its 'inflation targeting lite' regime has allowed it to shift from an emphasis on exchange rate targeting towards inflation targeting. By estimating a model in which the yield curve is modeled explicitly we are able to obtain estimates of inflation expectations.
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