Please use this identifier to cite or link to this item: https://hdl.handle.net/10356/83237
Title: Does wage-inflation targeting complement foreign exchange intervention? An evaluation of a multi-target, two-instrument monetary policy framework
Authors: Xie, Taojun
Liu, Jingting
Chia, Wai-Mun
Alba, Joseph Dennis
Keywords: Emerging markets
Foreign exchange interventions
Issue Date: 2017
Source: Xie, T., Liu, J., Alba, J. D., & Chia, W. -M. (2017). Does wage-inflation targeting complement foreign exchange intervention? An evaluation of a multi-target, two-instrument monetary policy framework. Economic Modelling, 62, 68-81.
Series/Report no.: Economic Modelling
Abstract: We assess the inclusion of wage inflation as an intermediate target of an emerging central bank using a dynamic stochastic general equilibrium model with sticky wages and prices calibrated for the South Korean economy. The model includes wage inflation as an additional target jointly with domestic price inflation and the output gap in a Taylor- type interest rate rule operating with a sterilized foreign exchange (FX) intervention rule. Our results show a complementary relationship between wage inflation targeting and price inflation targeting. That is, by supplementing price inflation targeting with wage inflation targeting, welfare improves for cases with and without sterilized FX intervention. When intervention is in place, wage inflation targeting has the added advantage of reducing the volatilities of nominal exchange rate and foreign exchange reserves thereby promoting a more sustainable conduct of FX intervention.
URI: https://hdl.handle.net/10356/83237
http://hdl.handle.net/10220/42500
ISSN: 0264-9993
DOI: 10.1016/j.econmod.2017.01.013
Rights: © 2017 Elsevier B. V. This is the author created version of a work that has been peer reviewed and accepted for publication by Economic Modelling, Elsevier. It incorporates referee’s comments but changes resulting from the publishing process, such as copyediting, structural formatting, may not be reflected in this document. The published version is available at: [http://dx.doi.org/10.1016/j.econmod.2017.01.013].
Fulltext Permission: open
Fulltext Availability: With Fulltext
Appears in Collections:HSS Journal Articles

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