Stabilizing Inflation in Iceland

37 Pages Posted: 12 Jan 2007

See all articles by Keiko Honjo

Keiko Honjo

International Monetary Fund (IMF)

Ben Hunt

International Monetary Fund (IMF) - Research Department

Date Written: November 2006

Abstract

This paper provides some empirical estimates on how tightly is it feasible to control inflation in a very small open economy such as Iceland. Estimated macroeconomic models of Canada, Iceland, New Zealand, the United Kingdom, and the United States are used to derive efficient monetary policy frontiers that trace out the locus of the lowest combinations of inflation and output variability that are achievable under a range of alternative monetary policy rules. These frontiers illustrate that inflation stabilization is more challenging in Iceland than in other industrial countries primarily because of the relative magnitudes of the economic shocks.

Keywords: Inflation, Iceland, Monetary policy, Economic stabilization, Economic models

JEL Classification: E31, E32, E52, E61, E63

Suggested Citation

Honjo, Keiko and Hunt, Benjamin, Stabilizing Inflation in Iceland (November 2006). IMF Working Paper No. 06/262, Available at SSRN: https://ssrn.com/abstract=956725

Keiko Honjo (Contact Author)

International Monetary Fund (IMF) ( email )

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

Benjamin Hunt

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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