are minor, and an inflation targeting rule represents an effective policy for the EME. With frictions in financial … intermediation, however, spillovers are substantially magnified, and an inflation targeting rule has little advantage over an … exchange rate peg. However, an optimal monetary policy markedly improves on the performance of naive inflation targeting or an …

. 'Looser' monetary policy, which implies a higher mean inflation rate, and a higher volatility of the exchange rate, will lead … nonlinear, relationship between pass-through and mean inflation, and a positive relationship between passthrough and exchange …