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Commodity Price Shocks and Imperfectly Credible Macroeconomic Policies in Commodity-Exporting Small Open Economies, Juan Pablo Medina Guzman, Claudia Soto

In this paper, we analyze how lack of credibility and transparency of monetary and fiscal policies undermines the effectiveness of macroeconomic policies to isolate the economy from commodity price fluctuations. We develop a general equilibrium model for a commodity-exporting economy where macro policies are conducted through rules. We show that the responses of output, aggregate demand, and inflation to an increase in commodity price are magnified when these rules are imperfectly credible and lack transparency. If policies are imperfectly credible, then transparency helps private agents to learn the systematic behavior of the autorities, reducing the effects of commodity prices shocks. Coherent with the model, we show cross-country evidence that monetary policy transparency and fiscal credibility reduce the incidence of export price volatility on output volatility. Also, our results indicate that having an explicit fiscal rule and an inflation targeting regime contribute to isolate the economy from terms of trade fluctuations
Table Of Contents
Cover; Contents; I. Introduction; II. The Model Economy; A. Households; B. Investment and capital goods; C. Domestic production; D. Import goods retailers; E. Commodity and Foreign sectors; F. Monetary and Fiscal Policies; III. Calibration And Simulations; A. Imperfect Credibility on the Monetary and Fiscal Rules; B. The role of monetary policy transparency; C. Credible and transparent monetary policy; D. Credible and transparent monetary policy and transparent fiscal policy; IV. Empirical Evidence; V. Conclusions; References; Tables; Table 1. Baseline Parameterization; Appendix
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (44 p.)
Specific Material Designation
Form Of Item

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