The paper considers the merits of rules and discretion for monetary policy when the structure of the macroeconomic model and the probability distributions of disturbances are not well defined. It is argued that when it is costly to delay policy reactions to seldom-experienced shocks until formal...

Inflation distorts prices, erodes savings, discourages investment,stimulates capital flight, inhibits growth, and makes economic planning anightmare. During the past decade, several advanced economies have takena new approach to the age-old problem of controlling inflation throughmonetary policy...

We provide a framework for analyzing the choice between optimal and robust monetary policy rules in the presence of paradigm uncertainty. We first discuss the conditions on uncertainty that render a robust rule preferable to an optimal rule. Second, we show how the degree of risk aversion of the...

It is well known that in a small open economy where there is perfect substitutability between domestic and foreign assets and costless portfolio adjustment, the monetary authorities cannot control the money supply, but can influence the balance of payments through the use of domestic credit. It...

In pursuing a steady-state reserve target, policymakers in small open economies can resort to devaluation or to temporary increases in public saving. This paper contrasts the dynamic implications of these alternative policies in a model with optimizing agents who possess perfect foresight. In...

Islam proposes the replacement of an interest-based financial system with one which operates on the basis of risk and profit sharing. Using a general equilibrium model, this paper investigates some open-economy implications of the adoption of Islamic banking for growth and stabilization of the...

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,...

This paper analyzes an economy in which there are no interest-bearing assets, only equity shares. Equilibrium conditions are derived for the case of a closed economy, an open economy with trade in goods only, and finally one with trade in both goods and equity shares. It is shown that the rate...

Several Central American (CADR) countries with independent monetary policies are strengthening their monetary frameworks and some have implemented or are moving towards inflation targeting (IT) regimes. Strengthening the monetary policy frameworks of CADR is key to improving the effectiveness of...

Since end-2001, the Government of Afghanistan (GoA) has focused on crisis management, establishing or rebuilding fundamental institutions and basic government services, and maintaining economic stability with the help of the international community. The authorities have made significant strides...