Lecturer: Kenneth Kuttner (bio)

Presentation
35 pages / 121kb

Summary
Following the inflation of the 1970s and 1980s, price stability has become the widely accepted objective of monetary policy. To this end, central banks now employ many forms of policy targets and institutional arrangements with varying degrees of accountability, independence, and transparency.

A substantial body of literature is now emerging that sheds light on the empirical links among targets, independence, accountability, and transparency in differing economic circumstances. And, more specifically, recent work addresses the notion that "corner solutions" — free float or currency union/dollarization — are the only long-run sustainable options for emerging markets. For example, Kuttner and Posen suggest that the combination of inflation target plus exchange rate float (with central bank autonomy) offers the same inflation rate performance as a hard exchange-rate commitment, while generating less exchange rate volatility and inflation persistence. The discussion groups will review selected current work to identify areas where best monetary-policy practice can be identified for industrial, transitional, and developing economies.

Recommended readings
Exchange Rate Regimes: Is the Bipolar View Correct?
By Stanley Fischer, Distinguished Lecture on Economics in Government at the Meetings of the American Economic Association, New Orleans, January 6, 2001, 39 pages / 642 kb

No Single Currency Regime is Right for All Countries or At All Times
By Jeffrey A. Frankel, Princeton University, International Finance Section, Essays in International Finance ( 215), August 1999, pages 1-16

Key issues in the Choice of Monetary Policy Framework
By Maxwell Fry, chapter I in Monetary Policy Frameworks in a Global Context (edited by Lavan Mahadeva and Gabriel Sterne; Routledge, 2000), 16 pages / 195kb

Beyond Bipolar: a Three-Dimensional Assessment of Monetary Policy Frameworks
By Kenneth N. Kuttner and Adam S. Posen, International Journal of Finance and Economics 6, October 2001, 19 pages / 179 kb