This paper characterizes, empirically, the conduct of monetary policy in a small open economy. In particular, using as a case study the Chilean inflation targeting experience, we assess the role of the exchange rate in the determination of the interest rate. We conclude that Chile has adopted...

Knowing the frictions that are present in the economy is a key step towards the efficient design of policy actions. In particular, price and wage rigidities determine the degree of tradeoff between output and inflation stabilization that central banks face. In this context, the main purpose of...

This paper describes the main tools used to analyze the exchange rate in the process of conducting and analyzing the macroeconomic policies of the Chilean Central Bank (CCB). In doing so, we first describe the main methodologies used to construct real exchange rate (RER) indices, and corroborate...

This paper estimates a DSGE model for Chile during the IT period using Bayesian techniques. In this setup, we investigate the way in which monetary policy has been designed. We also assess the performance of simple optimal rules under alternative preferences that the central bank may have, and...

This paper provides an empirical characterization of the conduct of monetary policy in a small open economy. In particular, using as a case study the Chilean inflation-targeting experience of the nineties, we assess the roles of the exchange rate and output in the determination of the policy...

There is substantial evidence suggesting that central banks in open economies react to exchange rate fluctuations in addition to expected inflation and output. In some developing countries this reaction is comparatively larger and it is nonlinear. Using an estimated structural macromodel, this...

This paper addresses three policy questions related to the episodes of real exchange rate (RER) appreciation in the aftermath of the 2008-09 global financial crisis. First, we determine the extent to which recent movements in RER, in several countries, are driven by changes in RER determinants...

We assess the role of real and nominal shocks on the real exchange rate (RER) dynamics for a set of small open economies. In doing so, we estimate a SVAR model for five inflation targeting countries: Australia, Canada, Chile, Israel and Norway. In sharp contrast with the existing empirical...

In a new-Keynesian model we compare the determinacy regions of price-level targeting rules (called Wicksellian rules) and Taylor rules. We conclude that Wicksellian rules do not require the Taylor principle to be satisfied to induce determinacy. Moreover, the areas of determinacy are generally...