Incorporating Financial Stability in Inflation Tar directing Frameworks
Burcu Aydin and Engin Volkan
© 2011 internationalist fiscal Fund
WP/11/224
IMF Working Paper Asia and Pacific part Incorporating Financial Stability in Inflation Targeting Frameworks Prepargond by Burcu Aydin and Engin Volkan 1 Authorized for distribution by Subir Lall September 2011 crimp The global financial crisis has exposed the limitations of a conventional pretentiousness targeting (IT) framework in insulating an economy from shocks, and demonstrated that its rigid activity may aggravate the effect of shocks on output and inflation. Accordingly, we check over possible refinements to the IT framework by incorporating financial stability considerations. We visualize a small open economy DSGE model, calibrated for Korea during the block of 200307, with real and financial frictions. The findings indicate that incorporating financial stability considerations rouse help smooth business cycle fluctuations more in effect than a conventional IT framework. JEL Classification Numbers:E30, E44,E50 Keywords: DSGE, financial accelerator, pecuniary policy, financial stability Authors E-Mail underwrite:baydin@imf.org, engin.volkan@bilgi.edu.
tr This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working text file describe research in progress by the author(s) and are published to elicit comments and to further debate.
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We are highly indebted(predicate) to Subir Lall for his invaluable suggestions; this project would not cod materialized without his support. In addition, we have greatly benefited from the inputs of Seung-Cheol Jeon and Minsu Kim. We also thank the participants of the seminars held at the International Monetary Fund and the Bank of Korea.
2 Contents I. II. Page
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