'Inflation Targeting Lite' in Small Open Economies: The Case of Mauritius

25 Pages Posted: 3 Mar 2006

See all articles by Nathan Porter

Nathan Porter

International Monetary Fund (IMF)

James Y. Yao

International Monetary Fund (IMF)

Date Written: August 2005

Abstract

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, principally through a reduction in inflation expectations. The credibility the Bank of Mauritius has established with its 'inflation targeting lite' regime has allowed it to shift from an emphasis on exchange rate targeting towards inflation targeting. By estimating a model in which the yield curve is modeled explicitly we are able to obtain estimates of inflation expectations.

Keywords: inflation targeting, small open economies, managed exchange rates

JEL Classification: E31, E43, E44, E52

Suggested Citation

Porter, Nathaniel John and Yao, James Y., 'Inflation Targeting Lite' in Small Open Economies: The Case of Mauritius (August 2005). IMF Working Paper No. 05/172, Available at SSRN: https://ssrn.com/abstract=888041

Nathaniel John Porter (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

James Y. Yao

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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