A Quantitative Model for the Integrated Policy Framework

58 Pages Posted: 28 Jul 2020 Last revised: 16 Aug 2020

See all articles by Tobias Adrian

Tobias Adrian

International Monetary Fund

Christopher Erceg

International Monetary Fund (IMF)

Jesper Lindé

Sveriges Riksbank

Pawel Zabczyk

International Monetary Fund MCMMP

Jianping Zhou

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2020

Abstract

Many central banks have relied on a range of policy tools, including foreign exchange intervention (FXI) and capital flow management tools (CFMs), to mitigate the effects of volatile capital flows on their economies. We develop an empirically-oriented New Keynesian model to evaluate and quantify how using multiple policy tools can potentially improve monetary policy tradeoffs. Our model embeds nonlinear balance sheet channels and includes a range of empirically-relevant frictions. We show that FXI and CFMs may improve policy tradeoffs under certain conditions, especially for economies with less well-anchored inflation expectations, substantial foreign currency mismatch, and that are more vulnerable to shocks likely to induce capital outflows and exchange rate pressures.

Keywords: Capital Flow Measures, DSGE model, emerging economies, FX intervention, monetary policy

JEL Classification: C54, E52, E58, F41

Suggested Citation

Adrian, Tobias and Erceg, Christopher and Lindé, Jesper and Zabczyk, Pawel and Zhou, Jianping, A Quantitative Model for the Integrated Policy Framework (July 2020). CEPR Discussion Paper No. DP15065, Available at SSRN: https://ssrn.com/abstract=3661408

Tobias Adrian (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://www.tobiasadrian.com

Christopher Erceg

International Monetary Fund (IMF)

Jesper Lindé

Sveriges Riksbank

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

Pawel Zabczyk

International Monetary Fund MCMMP ( email )

International Monetary Fund
700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://pawel.zabczyk.com

Jianping Zhou

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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