CROSBY, MARK; KAM, TIMOTHY; LEES, KIRDAN - In: The Economic Record 84 (2008) 266, pp. 354-365
This paper quantifies the costs of mitigating exchange rate volatility within the context of a flexible inflation targeting central bank. Within a standard linear-quadratic formulation of inflation targeting, we append a term that penalises deviations in the exchange rate to the central bank's...